U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
QUARTERLY PERIOD ENDED JUNE 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
TRANSITION PERIOD FROM ______________ TO
______________
COMMISSION FILE NUMBER: 33-68570
eCONNECT .
(Exact name of registrant as specified in its
charter)
Nevada
43-1239043
(State or jurisdiction of incorporation
I.R.S. Employer
or organization)
Identification
No.)
2500 Via Cabrillo Marina, Suite 112, San Pedro,
California
90731
(Address of principal
executive offices)
(Zip
Code)
Registrant's telephone number: (310) 514-9482
Securities registered pursuant to Section 12(b) of
the Act: None
Securities registered pursuant to Section 12(g) of
the Act: Common Stock, $0.01 Par Value; Class A
Warrants
Indicate by check mark whether the registrant (1)
has
filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter
period that the registrant was required to file such
reports), and (2) been subject to such filing
requirements for the past 90 days. Yes X
No
.
As of June 30, 1999, the registrant had
30,885,100 shares of common stock issued and
outstanding.
Transitional Small Business Dislcosure Format
(check one): Yes No X .
PART I.
ITEM 1. FINANCIAL STATEMENTS.
eCONNECT
BALANCE SHEETS
(Unaudited)
June 30, December
31,
1999
1998
ASSETS
Current Assets
Cash $ 184,218 $8,862
Total current assets
184,218
8,862
Investment in wholly-owned subsidiary
2,062,500 0
Property and equipment 5,478
0
Total Assets $2,252,196
$8,862
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable
$
440,331
$ 305,121
Due to a related party 1,219,379 24,169
Debenture payable 500,000 0
Common stock payable 1,411,000 0
Current portion - due vendor 60,000
0
Total current liabilities
3,630,710 329,290
Long Term Liability
Due vendor - less current portion of $60,000
580,000 0
Total liabilities
4,210,710 329,290
Commitments and Contingencies 0 0
Stockholders' Equity (Deficit):
Common stock, $0.001 par value at June 30,
$0.01 at December 31; authorized100,000,000
shares; issued and outstanding,14,354,798
and 30,885,100 and 14,475,234,
respectively
30,885 144,752
Additional paid-in capital 7,411,407
5,018,560
Accumulated deficit (9,400,806)
(5,483,740)
Total stockholders' equity (deficit)
(1,958,514) (320,428)
Total Liabilities and Stockholders'
Equity (Deficit) $ 2,252,196 $
8.862
See accompanying notes to interim financial
statements
eCONNECT
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months
Ended
June 30, June 30,
1999 1998 1999
1998
General and
administrative expenses:
Consulting fees $ 841,365 $ 0 $
867,615 $ 23,750 Legal fees
48,956 800 65,318 800
Office expense 0 5,160
4,358 17,491
Software development 186,070 0
190,170 2,143
Stock expense 11,508 1,143
22,314 12,000
Interest 97,500 0 97,500
0 License fee - related party
1,908,000 0 2,000,000 0
Executive compensation 50,000 0
50,000 0 Research &
development 312,184 0 312,184
0
Finders fees & stock promotion 84,450
0 84,450 0
Restitution expense 125,000 0
125,000 0
Other
70,753 0 98,157
0
Total operating expenses
3,735,786 7,103 3,917,066
56,184
Net loss
$(3,735,786) $(7,103)
$3,917,066 $(56,184)
Net loss per common share $
(.25) $ (.00) $ (.22) $
(.01)
Weighted average shares outstanding 14,685,596
11,181,234 18,233,711 11,293,234
See accompanying notes to interim financial
statements
eCONNECT
STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30, June 30,
1999 1998
Cash Flows From Operating Activities
Net loss: $ 3,917,066 $(57,327)
Stock given for services 722,638
35,750
Stock to be given to related party
2,125,000 0
Loss adjusted to cash basis (1,069,428)
(21,577) Changes in assets and
liabilities
(Accounts payable) 135,210 14,843
Cash Used in Operating Activities
(934,218) (6,734)
Cash Flows From Investing Activities:
Property and equipment (5,478) 0
Cash Flows From Financing Activities:
Issuance of Debenture 500,000
0 Issuance of common stock 861,587 0
Proceeds from borrowings 136,000 0
Paid down on borrowings (100,000) 0
(Paid down) borrowings from related party
(282,535) 6,700
Cash provided by financing activities
1,115,052 6,700
Net increase (decrease) in cash 175,356 (34)
Cash at beginning of period 8,862 34
Cash at end of period $ 184,218 $
0
Supplemental Disclosures:
Non-monetary transactions
Stock issued or to be issued for the
wholly owned subsidiary:
2,500,000 shares of restricted stock 687,500
0
2,500,000 shares to be issued (free trading)
1,375,000 0
$ 2,062,500 $ 0
Stock issued to a related party:
9,400,000 shares at par value $0.001
$ 9,400 $
0
Interest paid
$ 97,500 $
0
See accompanying
notes to interim financial statements.
ECONNECT
NOTES TO
INTERIM
FINANCIAL STATEMENTS
Basis of Presentation.
The information furnished herein relating to interim
periods has not been audited by an independent
certified public accountant. In the opinion of the
Company's management, the financial information in
this report reflects any adjustments that are
necessary for a fair statement of results for the
interim periods presented in accordance with
generally accepted accounting principles.
Certain information and footnote disclosure normally
included in financial statements prepared in
accordance with generally accepted accounting
principles have been omitted pursuant to the
requirements of the Securities and Exchange
Commission, although the Company believes that the
disclosures included in these financial statements
are adequate to make the information not misleading.
The financial statements should be read in
conjunction with the financial statements and notes
thereto included in the Company's annual report on
Form 10-KSB for the fiscal year ended August 31,
1998.
2. Organization.
The Company was originally organized under the laws
of the State of Missouri on September 1, 1981, as
HANDY-TOP, INC. On April 20, 1983, the Articles of
Incorporation were amended to change the name of the
corporation to HTI Corporation. On May 28, 1993,
the
Articles of Incorporation were amended to change the
name of the corporation to Leggoons, Inc. In
addition to changing the company's name, the May
28,1993, amendment to the Articles of Incorporation
increased the number of authorized shares of common
stock from 40,000 to 10,000,000 and decreased the
par
value of the common stock from $1.00 per share to
$.01 per share. Also on May 28, 1993, Leggoons,
Inc.,
declared a 14-for-1 stock split.
Thomas S. Hughes became Chairman and President of
Leggoons, Inc., on March 1, 1997. At that time, the
name was changed to Betting, Inc.
On May 17, 1999, an Agreement and Plan of
Merger
between Betting, Inc., a Missouri corporation, into
Betting, Inc., a Nevada corporation ("Company") was
executed by an authorized signatory of each company.
At a duly called meeting of shareholders on May 21,
1999, the merger of the two companies was approved
by
a majority of the shareholders appearing in person
or
by proxy. Effective on June 1, 1999, Articles of
Merger were filed with the Nevada Secretary of
State,
which formally resulted in the redomicile to the
State of Nevada. As a result of the merger, the
fiscal year-end was changed from August 31 to
December 31 and the par value of the common stock
was
changed from $0.01 per share to. $0.001 per share.
On June 4, 1999, a Certificate of Amendment of
Amendment to Articles of Incorporation was filed
with
the Nevada Secretary of State changing the name of
the Company to "eConnect.". An audited report will
be
filed (prior to August 31, 1999) for the four month
transition period from September 1, 1998 through
December 31, 1998.
The Company's business has been in a start-up mode.
No revenue has been recorded. As set forth in Note 9
"Subsequent Events," the Company has acquired (post
June 30, 1999) certain revenue producing businesses.
Hence forth, certain segments of the business will
be
revenue producing while other segments will continue
in the start-up phase.
3. Continued Existence.
The accompanying financial statements have been
prepared assuming that the Company will continue as
a
going concern. As set forth above, the Company,
through June 30, 1999, has been in a start phase
experiencing negative working capital and a
stockholders' deficit. This raises substantial doubt
about its ability to continue as a going concern.
The
interim financial statements do not include any
adjustments to reflect the possible future effects
on
the recoverability and classification of assets or
the amounts and classification of liabilities that
may result from the possible inability of the
Company
to continue as a going concern.
Management's plans to continue as a going concern
include the acquisition of going concern businesses
(Note 9 Subsequent Event). Management is cautiously
optimistic that the unaudited revenue and earnings
generated by businesses prior to acquisition will
continue and be available to fund those business
segments still in the start-up phase.
4. Related Party Transactions.
The Company has entered into various agreements with
Electronic Transactions and Technologies ("ET&T"), a
corporation 70% owned by Mr. Hughes. The following
are the transactions for the six months ended June
30, 1999 between the related parties (ET&T and Mr.
Hughes) and e Connect:
Charges
Cash disbursed to the related parties (net of a
$50,000 salary): $ 189,411
144 Restricted Stock issued to Mr. Hughes:
4,000,000 shares
144 Resticted Stock issued to ET&T: 5,400,000
shares
9,400,000 shares
Value at par value of $.001 per share: 9,400
Assumption of ET&T liability: 706,810
Total Charges
905,621
Credits
License fee (Note 6B):
2,000,000
Restitution (Note 6C): 125,000
Total Credits: 2,125,000
Due to ET&T and Mr. Hughes: $ 1,219,379
It is planned to reimburse ET&T in company stock.
5. Acquisition.
During the six months ended June 30, 1999, the
Company acquired 100% of Rogel Technologies, a
corporation which will assist the Company in
developing its product line. The acquisition was
accounted for as follows:
2,500,000 shares of restricted stock: $ 687,500
2,500,000 shares of free trading stock
to be delivered post June 30, 1999: 1,375,000
$2,062,500
The stock was valued at $.55 per share less a 50%
discount for restricted stock.
Commitments and Contingencies.
A. Debenture Payable.
The Company is contesting the payment of $500,000
principal due on a certain debenture, as claimed by
a
Canadian firm. The companies respective counsels are
currently negotiating a settlement of this matter.
B. Licensing Agreement.
ET&T has licensed the global intellectual rights of
four products to e Connect. The products are: "The
Paymaster," "The Slick," "The Pocket Pay" and " The
TV Pin Pad Remote." Each product is licensed at
$2,000,000 and is due if and when the Company
perfects the product. To date, only "The PayMaster"
has been perfected.
C. Restitution.
In connection with the acquisition of the
wholly-owned subsidiary, Rogel Technologies, Mr.
Thomas Hughes gave up 250,000 shares of his own
stock
valued at $.50 per share. In the event Mr. Hughes
receives the stock back, the restitution loss will
be
canceled.
D. Stock Options.
The Company does not have a formal stock plan,
however, certain consultants have, as part of their
agreements, the right to buy stock at a stipulated
price per share.
E. Agreement to License Assets.
The Company issued 2,900,000 shares of restricted
common stock to ET&T in exchange for licensing home
ATM card and SMART card wagering technology
developed
by ET&T. Of this amount, 2,755,000 shares were
placed
in escrow and were subject to cancellation on
February 10, 1998, in the event the bid price of the
common stock of the Company was not at least $3.00
per share for any twenty consecutive day period as
reported on the NASD's Electronic Bulletin Board
from
the date of the agreement through February 10, 1998.
As of the date of these financial statements, the
terms of the Licensing Agreement have not been met
by
the Company. However, the Company has entered into
amendment(s) of the original agreement that provide
for an extension of the cancellation deadline from
February 10, 1998, to September 1, 1999, subject to
certain conditions specified in the agreement. As of
the date these financial statements, none of the
conditions have been met. All conditions set forth
in
the original agreement need to be met on or before
September 1, 1999.
The License Agreement also provides that in the
event
that the bid price for the common stock of the
Company is more than $3.00 per share for any twenty
consecutive day period, the ET&T shall have the
option to purchase up to 13,822,000 additional
shares
of the Company common stock at an exercise price of
$.30 per share.
7. Earnings (loss) Per Share.
Net earnings (loss) per share are computed using the
weighted average number of common shares outstanding
during the period.
8. Income Taxes.
eConnect has unused net operating loss (NOL)
carryforwards of approximately $2,800,000 at
February
18, 1997, that were generated by Leggoons, Inc. The
unused net operating losses expire in various
amounts
from 2009 to 2012. However, due to change of
ownership rules of section 382 of the Internal
Revenue Code, some or all of these NOL carryforwards
may be unavailable to offset any future income of e
Connect. The Company generated losses of
approximately $1,658,000 during the six month period
ended August 31, 1997, losses of approximately
$197,000 during the year ended August 31, 1998, and
losses of approximately $183,000 during the six
months ended February 28, 1999. These losses,
totaling $4,838,000, may not qualify as federal and
state NOL carryforwards due to the possible
nondeductibility of the noncash service costs
incurred and the change of ownership rules of
section
382 of the Internal Revenue Code. The Company
provides an allowance for the entire amount of any
deferred tax assets that are applicable to the NOL.
In connection with the change in fiscal years ( see
Note 2), an application with the IRS will be filed
to
change the tax year.
Subsequent Event.
The Company filed a SB2 (a shelf offering) with the
Securities and Exchange Commission on June 1,1999,
which became effective July 22, 1999. A maximum of
20,000,000 shares (some of which have been issued)
are available to acquire the assets of various
businesses.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FIINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion should be read in
conjunction with the financial statements of the
Company and notes thereto contained elsewhere in
this
report.
Results of Operations.
Because the Company was in a start-up phase, there
were no reviews in either period. Activity for the
six months ended June 30, 1998 was immaterial
(approximately $56,000 of expenses).
For the period ended June 30, 1999, expenses were
approximately $3,900,000. Of the total expenses
$293,000 were incurred by the e Gate Division (Ezy
Shop) which began start-up operations in May. The
balance of the expenses approximating $3,600,000
were
incurred at the corporate level of which $2,000,000
was for a license fee, $800,000 for consulting
expenses and $125,000 for restitution or an
aggregate
of $2,925,000.
The above enumerated license fee ($2,000,000) and
restitution ($125,000) were paid in stock. Of the
$800,000 consulting expense, approximately $723,000
was paid in stock of the Company. Of the
approximate
$57,000 expenses incurred for the period ended June
30, 1998, $36,000 were paid in stock of the Company.
Liquidity and Capital Resources.
Because activity for the six months ended June 30,
1998 was immaterial, liquidity was not a factor. For
the six month period ended June 30, 1999 the Company
raised $417,500 from a debenture offering ($82,500
fee), approximately $862,000 from a stock offering
and $160,000 from individual borrowings.
For the period ended June 30, 1999 debt from
individual borrowings was paid down by $100,000. A
related party debt (ET&T) was paid down
approximately
$283,000. The Company paid down approximately
$700,000 on its debt to ET&T by assuming ET&T's
liability to a vendor.
Capital Expenditures.
No material capital expenditures were made during
the
quarter ended on June 30, 1999.
Year 2000 Issue.
The Year 2000 issue arises because many
computerized systems use two digits rather than four
to identify a year. Date sensitive systems may
recognize the year 2000 as 1900 or some other date,
resulting in errors when information using the year
2000 date is processed. In addition, similar
problems may arise in some systems which use certain
dates in 1999 to represent something other than a
date. The effects of the Year 2000 issue may be
experienced before, on, or after January 1, 2000,
and
if not addressed, the impact on operations and
financial reporting may range from minor errors to
significant system failure which could affect the
Company's ability to conduct normal business
operations. This creates potential risk for all
companies, even if their own computer systems are
Year 2000 compliant. It is not possible to be
certain that all aspects of the Year 2000 issue
affecting the Company, including those related to
the
efforts of customers, suppliers, or other third
parties, will be fully resolved.
The Company currently believes that its systems are
Year 2000 compliant in all material respects, its
current systems and products may contain undetected
errors or defects with Year 2000 date functions that
may result in material costs. Although management
is
not aware of any material operational issues or
costs
associated with preparing its internal systems for
the Year 2000, the Company may experience serious
unanticipated negative consequences (such as
significant downtime for one or more of its web site
properties) or material costs caused by undetected
errors or defects in the technology used in its
internal systems. Furthermore, the purchasing
patterns of advertisers may be affected by Year 2000
issues as companies expend significant resources to
correct their current systems for Year 2000
compliance. The Company does not currently have any
information about the Year 2000 status of its
advertising customers. However, these expenditures
may result in reduced funds available for web
advertising or sponsorship of web services, which
could have a material adverse effect on its
business,
results of operations, and financial condition. The
Company's Year 2000 plans are based on management's
best estimates.
Forward Looking Statements.
The foregoing Management's Discussion and Analysis
contains "forward looking statements" within the
meaning of Section 27A of the Securities Act of
1933,
as amended, and Section 21E of the Securities Act of
1934, as amended, and as contemplated under the
Private Securities Litigation Reform Act of 1995,
including statements regarding, among other items,
the Company's business strategies, continued growth
in the Company's markets, projections, and
anticipated trends in the Company's business and the
industry in which it operates. The words "believe,"
"expect," "anticipate," "intends," "forecast,"
"project," and similar expressions identify forward-
looking statements. These forward-looking
statements
are based largely on the Company's expectations and
are subject to a number of risks and uncertainties,
certain of which are beyond the Company's control.
The Company cautions that these statements are
further qualified by important factors that could
cause actual results to differ materially from those
in the forward looking statements, including, among
others, the following: reduced or lack of increase
in
demand for the Company's products, competitive
pricing pressures, changes in the market price of
ingredients used in the Company's products and the
level of expenses incurred in the Company's
operations. In light of these risks and
uncertainties, there can be no assurance that the
forward-looking information contained herein will in
fact transpire or prove to be accurate. The Company
disclaims any intent or obligation to update
"forward
looking statements".
PART II.
ITEM 1. LEGAL PROCEEDINGS.
The Company is not a party to any material pending
legal proceedings and, to the best of its knowledge,
no such action by or against the Company has been
threatened.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS.
The following matters were submitted to a vote of
the
Company's stockholders during the second quarter of
the fiscal year covered by this report:
A Special Meeting of the shareholders of the Company
was held on May 21, 1999.
The shareholders voted on approving and Agreement
and Plan of Merger between Betting, Inc., a Missouri
corporation, into Betting, Inc., a Nevada
corporation
(now know as eConnect), for the purpose of
redomiciling the Company to the State of Nevada. The
Agreement and Plan of Merger was approved by a total
of 8,700,000 shares (in person and by proxy) out of
a
total of 14,500,000 shares entitled to vote at that
time (no shares voted against the merger). This
merger was evidenced by the filing of Articles of
Merger with the Nevada Secretary of State (effective
on June 1, 1999).
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHBITS AND REPORTS ON FORM 8-K.
Reports on Form 8-K. Reports on Form 8-K were filed
during the second quarter of the fiscal year covered
by this Form 10-QSB, as follows:
Form 8-K filed on June 2, 1999 reflecting the merger
described in Item 4 above, the resulting change of
the fiscal year, as well as the Amendement of the
Articles of Incorporation of the Company changing
the
name from "Betting Inc." to "eConnect."
Form 8-K filed on June 23, 1999 reflecting the new
address for the Company and the new trading symbol
for the Company on the OTC Bulletin Board: ECNC.
(b) Exhibits included or incorporated by reference
herein: See Exhibit Index
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d)
of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly
authorized.
eConnect
Dated: August 11, 1999 By: /s/
Thomas S. Hughes
Thomas S. Hughes,
President
EXHIBIT INDEX
Exhibit No. Description
3.1 Articles of Incorporation of the Company,
incorporated by reference to Exhibit 3.1 of the
Registration Statement on Form SB-2/A filed on July
22, 1999.
3.2 Amendment of Articles of Incorporation,
incorporated by reference to Exhibit 3.2 of the
Registration Statement on Form SB-2/A filed on July
22, 1999.
3.3 Bylaws of the Company, incorporated by
reference
to Exhibit 3.3 of the Registration Statement on Form
SB-2/A filed on July 22, 1999.
4 Class A Warrant Agreement, incorporated by
reference to Exhibit 4.2 of Leggoons, Inc.
Registration Statement on Form S-1 filed on October
28, 1993.
10.1 Agreement to License Assets (incorporated by
reference to Exhibit 10.16 to the Form 8-K filed on
February 25, 1997).
10.2 Escrow Agreement (incorporated by reference to
Exhibit 10.17 to the Form 8-K filed on February 25,
1997).
10.3 ET&T Host Processing Agreement (incorporated by
reference to Exhibit 10.3 of the Form 10-KSB for the
period ending on August 31, 1998).
10.4 ET&T Licensing Agreement (incorporated by
reference to Exhibit 10.4 of the Form 10-KSB for the
period ending on August 31, 1998).
10.5 Letter of Commitment between Rogel
Technologies and the Company, dated May 6, 1999 (see
below).
27 Financial Data Schedule (see below).
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