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, 2001
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,
$0.001 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, 2001, the Registrant had 301,556,118 shares of common stock
issued and outstanding (1).
Transitional Small Business Disclosure Format (check one): Yes No X.
(1) See Other Information
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
eCONNECT
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
June 30, 2001
--------------------
ASSETS
Current assets
Accounts receivable $ 2,601
-------------
Total current assets 2,601
Fixed assets, net 254,577
Other assets
Investment in equity-method investee --
Intangible asset, net 275,624
Purchased software, net 1,154,596
Deposit 234,819
Other assets 19,002
-------------
1,684,041
-------------
Total assets $ 1,941,219
=============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable $ 2,655,516
Accrued liabilities 3,206,868
Due to consultants 22,000
Due to related parties 3,608,141
Settlement liabilities 1,605,000
Advance on equity funding line 500,000
Notes payable 1,944,406
-------------
Total current liabilities 13,541,931
-------------
Total liabilities 13,541,931
Commitments and contingencies --
Stockholders' deficit
Common stock; $.001 par value; 500,000,000
shares authorized, 290,955,236 shares
issued and outstanding 290,956
Additional paid-in capital 147,378,721
Due from related party - secured by
Company's common stock --
Common stock issued for prepaid consulting
services (2,746,867)
Minority interest in consolidated subsidiary (274,785)
Accumulated deficit (156,248,737)
-------------
Total stockholders' deficit (11,600,712)
-------------
Total liabilities and stockholders' deficit $ 1,941,219
=============
See Accompanying Notes to Consolidated Financial Statements
eCONNECT
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the three months ended June 30, For the six months ended June 30,
----------------------------------- ---------------------------------
2001 2000 (RESTATED) 2001 2000 (RESTATED)
------------- ------------------ ------------- ---------------
Revenue
Sports books loss $ -- $ -- $ -- $ --
E-Commerce sales 425 -- 1,604 --
------------ ------------- ------------- -------------
Gross loss 425 -- 1,604 --
Operating expenses
Stock based compensation 2,410,142 10,669,447 4,376,193 47,567,417
Consulting 334,356 1,690,535 565,649 2,886,875
Public relations 8,430 112,207 83,160 683,133
Professional fees 223,799 211,093 341,657 337,241
Research and development -- 86,807 54,300 914,073
Wages 533,008 877,277 999,364 877,277
Amortization and depreciation 413,125 561,944 671,468 785,127
General and administrative 291,292 750,537 477,409 2,119,047
------------ ------------- ------------- -------------
Total operating expenses 4,214,152 14,959,847 7,569,200 56,170,190
------------ ------------- ------------- -------------
Net loss from operations (4,213,727) (14,959,847) (7,567,596) (56,170,190)
Other income (expense)
Interest income 18,659 106,535 18,659 193,885
Interest expense (776,823) (232,193) (944,425) (257,112)
Loss on investments (233,770) (73,100) (233,770) (73,100)
Settlement expense (1,739,706) -- (1,739,706) --
Cancellation fee -- -- (526,212) --
Loss on equity method investees -- -- -- (280,366)
------------ ------------- ------------- -------------
Total other income (expense) (2,731,640) (198,758) (3,425,454) (416,693)
Net loss before provision for income taxes (6,945,367) (15,158,605) (10,993,050) (56,586,883)
Provision for income taxes -- -- -- --
------------ ------------- ------------- -------------
Net loss from continuing operations (6,945,367) (15,158,605) (10,993,050) (56,586,883)
Discontinued operations
Loss from operations of gaming operations
to be abandoned from January 1, 2001 to
June 30, 2001 (net of income tax benefit which
is fully allowed for) (160,107) (560,791) (215,086) (560,791)
Estimated loss on disposal of gaming operations
including losses during the phase-out period
net of income tax benefit which is fully
allowed for) (96,661) -- (96,661) --
------------ ------------- ------------- -------------
(256,768) (560,791) (311,747) (560,791)
Net loss $ (7,202,135) $ (15,719,396) $ (11,304,797) $ (57,147,674)
============ ============= ============= =============
Earning per share
Loss from continuing operations $ (0.026) $ (0.095) $ (0.042) $ (0.387)
Loss from discontinued operations (0.001) (0.003) (0.001) (0.004)
Loss on abandonment of gaming operations (0.000) -- (0.000) --
------------ ------------- ------------- -------------
Net loss $ (0.026) $ (0.098) $ (0.043) $ (0.391)
============ ============= ============= =============
Basic and diluted weighted average
common shares outstanding 272,055,540 160,283,677 260,794,243 146,235,595
============ ============= ============= =============
See Accompanying Notes to Consolidated Financial Statements
eCONNECT
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
(UNAUDITED)
Common shares Common shares
----------------------------- Additional Issued for Prepaid
Number of Paid-in Consulting
Shares Amount Capital Services
------------- ------------ -------------- ------------------
Balance, December 31, 2000 214,074,197 $ 214,074 $ 131,758,828 $ (1,271,655)
Common shares issued for prepaid consulting
services 11,800,000 11,800 4,135,130 (4,146,930)
Amortization of prepaid consulting services -- -- -- 2,671,718
Common shares issued in satisfaction of due to related parties 8,000,000 8,000 3,688,243 --
Common shares issued in satisfaction of due to consultants 2,400,000 2,400 2,018,047 --
Common shares issued for cash related to exercise of
warrants 1,262,313 1,262 77,864 --
Common shares issued for cash, weighted average price of $0.109 8,689,150 8,689 515,311 --
Common shares issued for cancellation fee 3,600,000 3,600 522,612 --
Common shares issued in satisfaction of debt related to
exercise of warrants with a strike price of $0.04 2,000,000 2,000 83,000 --
Common shares issued for services related to exercise of
warrants with a strike price of $0.26 74,113 74 19,102 --
Common shares issued in satisfaction of advance
on equity funding line 6,118,975 6,119 1,053,981 --
Common shares issued for receivable from equity funding line 2,501,538 2,502 241,398 --
Common shares issued for expenses 19,676,806 19,677 1,886,827 --
Common shares issued for interest 1,034,615 1,035 108,739 --
Common stock issued in satisfaction of due to related party,
including interest of $369,006 9,723,529 9,724 934,917 --
Warrants granted for interest -- -- 9,275 --
Warrants granted in satisfaction of promissory note payable,
including interest of $265,447 -- -- 325,447 --
Net loss -- -- -- --
------------- --------- ------------- ------------
Balance, June 30, 2001 $ 290,955,236 $ 290,956 $ 147,378,721 $ (2,746,867)
============= ========= ============= ============
Minority
Interest In Total
Consolidated Accumulated Stockholders'
Subsidiary Deficit Deficit
---------------- ----------------- -----------------
Balance, December 31, 2000 $ (92,308) $ (145,126,417) $ (14,517,478)
Common shares issued for prepaid consulting
services -- -- --
Amortization of prepaid consulting services -- -- 2,671,718
Common shares issued in satisfaction of due to related parties -- -- 3,696,243
Common shares issued in satisfaction of due to consultants -- -- 2,020,447
Common shares issued for cash related to exercise of
warrants -- -- 79,126
Common shares issued for cash, weighted average price of $0.109 -- -- 524,000
Common shares issued for cancellation fee -- -- 526,212
Common shares issued in satisfaction of debt related to
exercise of warrants with a strike price of $0.04 -- -- 85,000
Common shares issued for services related to exercise of
warrants with a strike price of $0.26 -- -- 19,176
Common shares issued in satisfaction of advance
on equity funding line -- -- 1,060,100
Common shares issued for receivable from equity funding line -- -- 243,900
Common shares issued for expenses -- -- 1,906,504
Common shares issued for interest -- -- 109,774
Common stock issued in satisfaction of due to related party,
including interest of $369,006 -- -- 944,641
Warrants granted for interest -- -- 9,275
Warrants granted in satisfaction of promissory note payable,
including interest of $265,447 -- -- 325,447
Net loss (182,477) (11,122,320) (11,304,797)
---------- -------------- -------------
Balance, June 30, 2001 $ (274,785) $ (156,248,737) $ (11,600,712)
========== ============== =============
See Accompanying Notes to Consolidated Financial Statements
eCONNECT
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
For the six months ended June 30,
---------------------------------------------
2001 2000 (RESTATED)
-------------- ---------------
Cash flows from operating activities:
Net loss $ (11,304,797) $ (57,147,674)
Adjustments to reconcile net loss to net
cash used by operating activities:
Amortization and depreciation 671,468 785,127
Stock based compensation 4,376,193 47,567,417
Cancellation fee 526,212 --
Loss on investments 233,770 --
Equity losses on investees -- 280,366
Estimated loss on disposal of gaming operations 96,661 --
Changes in operating assets and liabilities:
Change in stock subscription receivable -- 220,176
Change in due from related party -- (60,525)
Change in due from related party -
secured by Company's common stock -- (1,412,036)
Change in deposits -- (250,000)
Change in accounts receivable 14,157 --
Change in other assets 86,610 (141,721)
Change in accounts payable 543,243 2,007,610
Change in accrued liabilities 173,495 1,414,962
Change in due to related parties 1,465,639 2,635,827
Change in due to consultants 22,000 --
Change in settlement liabilities 1,605,000 --
Change in stockholder loan payable -- 361,818
------------- -------------
Net cash used by operating activities (1,490,349) (3,738,653)
Cash flows from investing activities:
Purchase of fixed assets (31,884) (474,310)
Purchase of purchased software -- (2,168,892)
Cost of investments -- (980,797)
------------- -------------
Net cash used by investing activities (31,884) (3,623,999)
Cash flows from financing activities:
Proceeds from issuance of notes payable 237,500 --
Principal payments on notes payable (685,000) --
Proceeds from minority interest in consolidated subsidiary -- 15,625
Proceeds from equity funding line 1,353,500 --
Proceeds from issuance of common stock 603,226 7,384,998
------------- -------------
Net cash provided by financing activities 1,509,226 7,400,623
------------- -------------
Net increase in cash (13,007) 37,971
Cash, beginning of period 13,007 126,172
------------- -------------
Cash, end of period $ -- $ 164,143
============= =============
Supplemental disclosure of cash flow:
Cash paid for interest $ 107,000 $ --
============= =============
Cash paid for taxes $ -- $ --
============= =============
See Accompanying Notes to Consolidated Financial Statements
Schedule of non-cash investing and financing activities:
2,501,538 common shares issued for receivable
from equity funding line $ 243,900 $ --
============= =============
11,800,000 common shares issued for prepaid
consulting services $ 4,146,930 $ --
============= =============
8,000,000 common shares issued in satisfaction
of due to related parties $ 3,696,243 $ --
============= =============
2,400,000 common shares issued in satisfaction
of due to consultants $ 2,020,447 $ --
============= =============
2,118,975 common shares issued in satisfaction
of advance on equity funding line $ 206,600 $ --
============= =============
Warrants granted in satisfaction of promissory
note payable, not including interest of $265,447 $ 60,000 $ --
============= =============
Remaining consideration of the second half acquisition of
Top Sports, S.A. recorded as Due to related parties $ -- $ 2,785,868
============= =============
1,000,000 common shares cancelled during renegotiation
of 99.94% of Top Sports, S.A. recorded as portion of
due to related parties $ -- $ (73,100)
============= =============
8,000,000 common shares issued related to the acquisition
of Powerclick, Inc. $ -- $ 1,300,000
============= =============
666,667 common shares issued for accounts payable $ -- $ 550,000
============= =============
6,000,000 common shares issued for officer bonus payable $ -- $ 4,800,000
============= =============
495,000 common shares issued for stock subscription payable $ -- $ 81,546
============= =============
200,000 common shares issued related to the acquisition of
Top Sports, S.A. $ -- $ 47,032
============= =============
See Accompanying Notes to Consolidated Financial Statements
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
accordance with Securities and Exchange Commission requirements for interim
financial statements. Therefore, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. The financial statements should be read in
conjunction with the Form 10-KSB for the year ended December 31, 2000 of
eConnect ("the Company").
The results of operations for the interim periods shown in this report are
not necessarily indicative of results to be expected for the full year. In
the opinion of management, the information contained herein reflects all
adjustments necessary to make the results of operations for the interim
periods a fair statement of such operation. All such adjustments are of a
normal recurring nature.
New accounting pronouncements - On July 20, 2001, the Financial Accounting
-----------------------------
Standards Board (FASB) issued Statement of Financial Accounting Standards
(SFAS) 141, Business Combinations, and SFAS 142, Goodwill and Intangible
Assets. SFAS 141 is effective for all business combinations completed after
June 30, 2001. SFAS 142 is effective for fiscal years beginning after
December 15, 2001; however, certain provisions of this Statement apply to
goodwill and other intangible assets acquired between July 1, 2001 and the
effective date of SFAS 142. Major provisions of these Statements and their
effective dates for the Company are as follows:
o all business combinations initiated after June 30, 2001 must us the
purchase method of accounting. The pooling of interest method of
accounting is prohibited except for transactions initiated before
July 1, 2001.
o intangible assets acquired in a business combination must be
recorded separately from goodwill if they arise from contractual or
other legal rights or are separable from the acquired entity and
can be sold, transferred, licensed, rented or exchanged, either
individually or as part of a related contract, asset or liability.
o goodwill, as well as intangible assets with indefinite lives,
acquired after June 30, 2001, will not be amortized. Effective
January 1, 2002, all previously recognized goodwill and intangible
assets with indefinite lives will no longer be subject to
amortization.
o effective January 1, 2002, goodwill and intangible assets with
indefinite lives will be tested for impairment annually and
whenever there is an impairment indicator.
o all acquired goodwill must be assigned to reporting units for
purposes of impairment testing and segment reporting.
Although it is still reviewing the provisions of these Statements,
management's preliminary assessment is that these Statements will not have
a material impact on the Company' financial position or results of
operations.
2. DISCONTINUED OPERATIONS
During June 2001, the Company adopted a formal plan to abandon its gaming
operations. As of June 30, 2001, the Company has completed the closing of
all walk-in sports book located in the Dominican Republic. The assets
abandoned consisted primarily of fixed assets with a net book value of
approximately $26,000 and other assets of approximately $68,000 which has
been recognized as part of the estimated loss on disposal of gaming
operations including the losses during the phase-out period (net of income
tax benefit which is fully allowed for). The Company has liabilities in the
gaming operations accrued of approximately $792,000. Operating results of
the gaming operations for the three and six months ended June 30, 2001 and
2000 are shown separately in the accompanying statement of operations.
3. CANCELLATION FEE
During October 2000, the Company entered into an agreement to acquire all
the assets of Broadband Video, Inc. in exchange for 10,000,000 shares of
common stock, 3,000,000 warrants to purchase common stock for $1.00 per
share which expire on December 31, 2001. The Company did not complete nor
intends to complete this transaction and has agreed to issue 3,600,000
shares of common stock as a cancellation fee. For the six months ended
June, 2001, the Company has recorded an expense related to this fee
totaling $526,212 which is reflected in the consolidated statements of
operations.
4. STOCK BASED COMPENSATION
For the three months ended June 30, 2001 and 2000, the Company incurred
expenses resulting from stock warrants and common stock issued totaling
$2,410,142 and $10,669,447, respectively. For the six months ended June 30,
2001 and 2000, the Company incurred expenses resulting from stock warrants
and common stock issued totaling, $4,376,193 and $47,567,417, respectively.
The following table summarizes the Company's stock based compensation
activities based on the accounts shown on the consolidated statements of
operations:
Three months ended June 30, Six months ended June 30,
--------------------------------- ---------------------------------
2001 2000 2001 2000
--------------- ---------------- --------------- ----------------
Consulting $ 2,041,136 $ 7,181,359 $ 3,622,691 $ 40,246,853
Public relations -- 322,358 -- 2,677,381
Research and development-- -- 1,220,150 -- 2,389,679
Wages -- 210,938 -- 210,938
Interest 369,006 -- 753,502 --
Financing fees -- 716,139 -- 716,139
Professional fees -- 277,166 -- 277,166
Investor relations -- 741,337 -- 1,049,261
--------------- ---------------- --------------- ----------------
Total stock based
compensation $ 2,410,142 $ 10,669,447 $ 4,376,193 $ 47,567,417
=============== ================ =============== ================
5. SETTLEMENT LIABILITIES
Former President and Chief Operating Officer for the Company - On March 21,
2000, the Company consummated an amended employment agreement with an
individual for the position of President and Chief Operating Officer for
the Company. On April 17, 2000, the Company terminated this individual as
President and Chief Operating Officer of the Company. Based upon the
amended employment agreement, the remaining salary for the term of this
agreement, will be due within 30 days upon the termination of this
individual if terminated for reasons other than good cause. In addition,
through the date of termination, all of the granted stock options and
warrants will vest and be exercisable for their entire term. Accordingly,
the termination of this individual, for reasons other than good cause, may
potentially expose the Company to incur a liability of approximately
$1,260,000 for the remaining portion of unpaid salary for the first,
second, third, and fourth years of this agreement. Furthermore, the
termination may have accelerated the vesting of the granted stock options
and warrants consisting of 1,000,000 warrants exercisable at $1.00 per
share, 6,000,000 stock options exercisable at $0.40 per share, and
1,500,000 stock options exercisable at the lowest average daily trading
price of the Company's common stock within the first 90 days of the
executive's employment. On March 21, 2001, the former President and Chief
Operating Officer for the Company filed a complaint for breach of contract
and specific performance.
During June 2001, funds of approximately $186,000 were set aside and
subsequently granted as part of a settlement reached with the former
President and Chief Operating Officer for the Company during July 2001. In
addition, the Company has agreed to pay $120,000 on November 16, 2001 and
14
monthly installments of $50,000 commencing on February 16, 2002 totaling a
settlement liability of $825,000 as of June 30, 2001 and a settlement
expense of approximately $1,006,000.
Goldstake Enterprises, Inc. - On October 13, 2000, the Company borrowed
---------------------------
$200,000 from Goldstake Enterprises, Inc. (hereafter referred to as
"Goldstake") which became due and payable on January 13, 2001. The Company
also had various consulting contracts with Goldstake whereby the Company
agreed to issue shares and pay a percentage of capital raised through
Goldstake's efforts. During May 2001, the Company agreed to pay Goldstake
$625,000 for the loan and various consulting contracts primarily in monthly
installments ranging from $25,000 to $50,000 through October 2002. In
addition the Company will issue 2,000,000 shares of common stock to
Goldstake valued at $180,000 and Goldstake will abate the accrued interest
of $66,000 the Company had recorded. As of June 30, 2001, the settlement
liability related to Goldstake totaled $715,000 and a settlement expense of
approximately $539,000.
Other settlements - As of and for the six months ended the Company has
-----------------
settled and is involved in various legal proceedings. While the results of
these matters cannot be predicted with certainty, the Company's management
believes that losses, if any, resulting from the ultimate resolution of
these matters will not have a material adverse effect on the Company's
consolidated results of operations, cash flows or financial position.
However, unfavorable resolution could affect the consolidated results of
operations or cash flows for the years in which they are resolved.
6. SUBSEQUENT EVENTS
Purchased software - During July 2001, the Company returned the purchased
------------------
software which represents licenses to use the Connex Software System used
in processing e-commerce transactions. The licenses were valued at
approximately $2,169,000 and amortized on a straight-line basis over three
years. The Company is currently negotiating the terms of this transaction.
Richard Epstein and Alliance Equities (company controlled by Richard
--------------------------------------------------------------------
Epstein, a shareholder of the Company) - During June 2001, the Company
-------------------------------------
agreed to issue 20,000,000 shares of the Company's common stock in
satisfaction of all balances due to Richard Epstein and Alliance Equities
(hereafter referred to as "Alliance"). As of June 30, 2001, the balance due
Alliance approximated $1,486,000.
7. GOING CONCERN
The Company incurred a net loss of approximately $7,202,000 and $11,305,000
for the three and six months ended June 30, 2001, respectively. The
Company's current liabilities exceed its current assets by approximately
$13,539,000 as of June 30, 2001. These factors create an uncertainty about
the Company's ability to continue as a going concern. The Company's
management has developed a plan to complete the development of technology
products and create their respective markets to generate future revenues.
The Company will also seek additional sources of capital through the
issuance of debt and equity financing, but there can be no assurance that
the Company will be successful in accomplishing its objectives.
The ability of the Company to continue as a going concern is dependent on
additional sources of capital and the success of the Company's plan. The
financial statements do not include any adjustments that might be necessary
if the Company is unable to continue as a going concern.
ITEM 2. PLAN OF OPERATION
The Company has now completed the full end to end Bank Eyes Only System
which refers to the deployment of working eCashPads affecting card swiped credit
card "present" transactions over the Internet. These transactions are first
received by the eConnect Server System and then routed to VeriSign for gating
into the credit card network for card authorization.
The Company expects to implement the additional service of ATM card
with PIN entry on line debit transactions within the third quarter. The Company
has posted a Roll Out Schedule at the company web site
http://www.econnectholdings.com.
The Company is presently receiving on going daily orders by deployed
eCashPads at the Company eConnect store which is a proof of concept site. The
eCashPad is presently being sold for $59.95.
"Bank Eyes Only" refers to a direct Internet connection between the
consumer's terminal and the company's bank card authorization system by which
the consumer will order an item from an Internet merchant, but the credit card
data or ATM data will go directly to the company's server and then to the bank,
bypassing the merchant. Thus, this service will enable customers to pay for
Internet purchases, bill payments and other types of transactions from home by
physically swiping either credit cards or ATM cards with PIN entry. These "Bank
Eyes Only" transactions can be processed over the Internet without the
cardholder account information being stored at the merchant's web site, nor does
the merchant have ready access to the consumer's bank card information.
The company believes that "Bank Eyes Only" transaction processing
system will effectively address Internet consumers' concerns regarding personal
and financial information security. The company plans to publish the "Bank Eyes
Only" web merchant install download documentation during the third quarter and
is confident that based on present web merchant responses to adding on the
alternative payment solution of "Bank Eyes Only", that substantial numbers of
web merchants will be accessible to payment by an eCashPad.
The company plans to distribute a substantial number of promotional
eCashPads during the third and fourth quarters. The company has reasonable
expectations that the average eCashPad will transact 2 monthly transactions per
1,000 "Bank Eyes Only" web merchant base. Presently, the eCashPad effects credit
card transactions only.
In the third quarter, the company is confident that ATM card with PIN
regional pilots with the eCashPad will begin which will enable the company to
offer instant electronic cash payments by debit POS to web merchants. The
company also has reason to believe that a substantial number of additional web
merchants will become accessible to the service of ATM card with PIN immediate
payments. Industries such as mortgage, insurance, telecommunications,
collections, charity, entertainment, finance and others will begin to place
upward pressure on their client base to pay by ATM card with PIN entry cash
transactions. This will add more "Bank Eyes Only" accessible web merchants and
will increase the monthly usage of the eCashPad.
Registration of "Bank Eyes Only" web merchants will be pursued by a
team of specialists to be hired who understand their specific industry such as
phone or cable or collections and who will fully develop the pertinent "Bank
Eyes Only" applications for that industry and who will develop strategic
alliances within their specific industry. In addition, the company has
structured a networking approach for mass market consumer participation in
finding "Bank Eyes Only" merchants along with sales teams to sign on local web
merchants. Using a revenue sharing plan from the flat fee, the company will
incentivize private labels of eCashPads with expected advertising and marketing
of these private label eCashPads by the vendors to their consumer base. The
company is projecting an average transaction revenue of 50 cents per usage which
is charged to the web merchant.
The company is presently selling the eCashPad for $59.95 and expects to
substantially lower the price in the third quarter. The company estimates a web
merchant base of 10,000 merchants to be developed over the third and fourth
quarters. The company estimates that the average eCashPad will generate 10 to 20
transactions monthly.
The company also plans to activate the EzyShop service in the third
quarter in which the eCashPad will be placed in public walk-in locations such as
national chains of high traffic coffee shops. Working with a strategic partner
who will provide the monitor and PC to enable Internet access, the company is
confident that consumers will use the eCashPad to shop at "Bank Eyes Only" web
merchant sites.
It is the plan of the company to establish a full service host center
by the third quarter of 2001 that certifies and processes other types of
competitive hardware. The company will generate fees from these hardware vendors
to process incoming transactions. Outside of the United States, the company
intends to develop full service host centers.
It is the intention of the company to establish the following full
service company host centers, eConnect Ireland, eConnect China, eConnect
Australia, eConnect Mexico and eConnect Brazil. Using the Internet as the
medium, these full service centers will enable consumers using an eCashPad to
affect country to country "Bank Eyes Only" transactions.
The company envisions the usage of the eCashPad to effect Internet cash
wagers by either ATM card with PIN or by chip card payments. Global Internet
Cash Games will be a service of the company which will provide support services
for Internet companies offering games of skill and games of chance whereby
players are using their eCashPad with ATM card and PIN entry to effect on line
cash transactions. One projected gaming service will be the "International",
which will be a four country real time "Bank Eyes Only" with ATM card and PIN
entry game between the countries of the Dominican Republic, Ireland, Australia,
and China, whereby consumers within those countries will be able to use the
eCashPad to effect same day gaming with ATM card and PIN entry.
Artaste.com, a business unit of the company will be able to accept
"Bank Eyes Only" transactions in the third quarter. In the Gallery, juried
exhibitions of nationally recognized artists who bring their own following will
begin. Special exhibits from collectors will also be presented. To this date,
artaste.com has served as a vehicle to offer the eCashPad for sale and to
generate a growing list of registered members that can be contacted for both
eCashPad sales and the install of "Bank Eyes Only" at their web site. It is the
plan of the company to use 10% discounts for purchases from artaste.com as an
incentive for consumers to buy an eCashPad. The company is confident that
revenues will be steadily generated by artaste.com in third quarter.
Forward Looking Statements.
This prospectus contains "forward looking statements" within the
meaning of Rule 175 under the Securities Act of 1933, as amended, and Rule 3b-6
under the Securities Act of 1934, as amended, including statements regarding,
among other items, the company's business strategies, continued growth in the
company's markets, projections, and anticipated trends in the company's business
and the industry in which it operates. The words "believe," "expect,"
"anticipate," "intends," "forecast," "project," and similar expressions identify
forward-looking statements. These forward-looking statements are based largely
on the company's expectations and are subject to a number of risks and
uncertainties, certain of which are beyond the company's control. The company
cautions that these statements are further qualified by important factors that
could cause actual results to differ materially from those in the forward
looking statements, including, among others, the following: reduced or lack of
increase in demand for the company's products, competitive pricing pressures,
changes in the market price of ingredients used in the company's products and
the level of expenses incurred in the company's operations. In light of these
risks and uncertainties, there can be no assurance that the forward-looking
information contained herein will in fact transpire or prove to be accurate. The
company disclaims any intent or obligation to update "forward looking
statements."
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Previously reported in Form SB-2, filed July 30, 2001.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
Sales of Unregistered Securities.
All sales through March 31, 2001, have been previously reported. There have been
no additional sales of unregistered securities since that time.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On July 12, 2001, a Special Meeting of the Shareholders was called for the sole
purpose of voting for an amendment to the Articles of Incorporation. This
proposed amendment, which was offered by the Board of Directors after adopting
an appropriate resolution, was to increase the authorized Shares of common stock
of the registrant to 500,000,000 from 300,000,000. The amendment passed and
appropriate forms were
subsequently filed with the Nevada Secretary of State to formally adopt the
amendment.
ITEM 5. OTHER INFORMATION.
Information regarding previous equity lines has been previously reported.
Further information regarding continuous funding for the registrant via a Common
Stock Purchase Agreement is previously reported in the SB-2 filed with the
Commission on July 30, 2001.
ITEM 6. EXHBITS AND REPORTS ON FORM 8-K.
Exhibits incorporated by reference herein are set forth in the attached Exhibit
Index.
There were no reports on Form 8-K filed during the first quarter of the fiscal
year covered by this Form 10-QSB.
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 13, 2001 By: /s/ Thomas S. Hughes
----------------------------
Thomas S. Hughes,
Chairman, CEO
EXHIBIT INDEX
Exhibit Description
No.
2 Agreement and Plan of Merger, dated June 1, 1999 (incorporated by
reference to Exhibit 2 of the Form 10-KSB filed on May 9, 2000).
3.1 Articles of Incorporation, March 8, 1999 (incorporated by reference to
Exhibit 3.1 of the Form SB-2/A filed on July 22, 1999).
3.2 Certificate of Amendment of Articles of Incorporation, dated May 25, 1999
(incorporated by reference to Exhibit 3.2 of the Form SB-2/A filed on
July 22, 1999).
3.3 Certificate of Amendment of Articles of Incorporation, dated August 20,
1999 (incorporated by reference to Exhibit 3.3 of the Form SB-2/A filed
on September 3, 1999).
3.4 Certificate of Amendment of Articles of Incorporation, dated November 20,
2000 (incorporated by reference to Exhibit 3.4 of the Form SB-2/A filed
on March 8, 2001).
3.5 Bylaws, dated May 14, 1999 (incorporated by reference to Exhibit
3.3 of the Form SB-2/A filed on July 22, 1999).
3.6 Amended and Restated Bylaws, dated September 15, 2000 (incorporated by
reference to Exhibit 3.5 of the Form 10-QSB filed on November 14, 2000).
4.1 Addendum to Common Stock Purchase Agreement between the Registrant and
Alpha Venture Capital, Inc., dated February 13, 2001 (incorporated by
reference to Exhibit 4.78 of the Form SB- 2/A filed on May 2, 2001).
4.2 Line of Credit Agreement between the Registrant and Alliance Equities,
dated March 5, 2001 (incorporated by reference to Exhibit 4.79 of the
Form SB-2/A filed on May 2, 2001).
4.3 Debenture issued by the Registrant to Richard Epstein, dated March 20,
2001 (incorporated by reference to Exhibit 4.80 of the Form SB-2/A filed
on May 2, 2001).
4.4 Amended and Restated Non-Employee Directors and Consultants
Retainer Stock Plan (Amendment No. 4), dated April 27, 2001
(incorporated by reference to Exhibit 4.1 of the Form S-8 filed on May 2,
2001).
4.5 Consulting Services Agreement between the Registrant and Francis Mecoli,
dated March 19, 2001 (incorporated by reference to Exhibit 4.2 of the
Form S-8 filed on May 2, 2001).
4.6 Consulting Services Agreement between the Registrant and William West,
dated March 20, 2001 (incorporated by reference to Exhibit 4.3 of the
Form S-8 filed on May 2, 2001).
4.7 Consulting Services Agreement between the Registrant and Marc Tow, dated
March 20, 2001 (incorporated by reference to Exhibit 4.4 of the Form S-8
filed on May 2, 2001).
4.8 Consulting Services Agreement between the Registrant and Felix Campos,
dated March 20, 2001 (incorporated by reference to Exhibit 4.5 of the
Form S-8 filed on May 2, 2001).
4.9 Consulting Services Agreement between the Registrant and Mark Christ,
dated March 20, 2001 (incorporated by reference to Exhibit 4.6 of the
Form S-8 filed on May 2, 2001).
4.10 Consulting Services Agreement between the Registrant and Thomas A.
Sandelier, dated March 20, 2001 (incorporated by reference to Exhibit 4.7
of the Form S-8 filed on May 2, 2001).
4.11 Consulting Services Agreement between the Registrant and Prince Saud
Al-Faisal, dated March 20, 2001 (incorporated by reference to Exhibit 4.8
of the Form S-8 filed on May 2, 2001).
4.12 Consulting Services Agreement between the Registrant and Ralph DiFelice,
dated March 20, 2001 (incorporated by reference to Exhibit 4.9 of the
Form S-8 filed on May 2, 2001).
4.13 Form of Debenture issued by the company to CALP II, LP, dated June 9,
1999 (incorporated by reference to Exhibit 4.3 of the Form SB-2/A filed
on July 22, 1999).
4.14 Registration Rights Agreement between the company and CALP II, LP, dated
June 9, 1999 (incorporated by reference to Exhibit 4.2 of the Form SB-2/A
filed on July 22, 1999).
4.15 Common Stock Purchase Agreement between the company and Alpha Venture
Capital, Inc., dated September 28, 1999 (incorporated by reference to
Exhibit 4.2 of the Form SB-2 POS filed on September 29, 1999).
4.16 Registration Rights Agreement between the company and Alpha Venture
Capital, Inc., dated September 28, 1999 (incorporated by reference to
Exhibit 4.3 of the Form SB-2 POS filed on September 29, 1999).
4.17 Warrant issued by the company to Alpha Venture Capital, Inc., dated
September 28, 1999 (incorporated by reference to Exhibit 4.4 of the Form
SB-2 POS filed on September 29, 1999).
4.18 Amended and Restated Retainer Stock Plan for Non-Employee Directors and
Consultants, dated February 1, 2000 (incorporated by reference to Exhibit
4.1 of the Form S-8 filed on February 10, 2000).
4.19 Warrant Agreement between the company, GunnAllen Financial, Inc., and
David Kern Peteler, dated May 24, 2000 (incorporated by reference to
Exhibit 4.43 of the Form 10-QSB filed on November 14, 2000).
4.20 Amended and Restated Stock Incentive Plan, dated September 1, 2000
(incorporated by reference to Exhibit 4.1 of the Form S-8 filed on
September 12, 2000).
4.21 Amended and Restated Non-Employee Directors and Consultants Retainer
Stock Plan (Amendment No. 2), dated September 1, 2000 (incorporated by
reference to Exhibit 4.2 of the Form S-8 filed on September 12, 2000).
4.22 Addendum To Existing Common Stock Purchase Agreement Dated September 28,
1999 between the company and Alpha Venture Capital, Inc., dated October
23, 2000 (incorporated by reference to Exhibit 4.57 of the Form SB-2/A
filed on May 3, 2001).
4.23 Amended and Restated Non-Employee Directors and Consultants Retainer
Stock Plan (Amendment No. 3), dated November 1, 2000 (incorporated by
reference to Exhibit 4.2 of the Form S-8 filed on November 20, 2000).
4.24 Amended and Restated Stock Incentive Plan (Amendment No. 2), dated
November 7, 2000 (incorporated by reference to Exhibit 4.1 of the Form
S-8 filed on November 20, 2000).
4.25 Common Stock Purchase Agreement between the company and Alpha Venture
Capital, Inc., dated December 8, 2000 (incorporated by reference to
Exhibit 4.76 of the Form SB-2/A filed on May 3, 2001).
4.26 Warrant to Purchase Shares of Common Stock, issued by the company to
Alpha Venture Capital, Inc., dated December 8, 2000 (incorporated by
reference to Exhibit 4.77 of the Form SB-2/A filed on May 3, 2001).
4.27 Addendum to Common Stock Purchase Agreement between the company and Alpha
Venture Capital, Inc., dated February 13, 2001 (incorporated by reference
to Exhibit 4.78 of the Form SB-2/A filed on May 3, 2001).
4.28 Line of Credit Agreement between the company and Alliance Equities, dated
March 5, 2001 (incorporated by reference to Exhibit 4.79 of the Form
SB-2/A filed on May 3, 2001).
4.29 Debenture issued by the company to Alliance Equities, dated March 20,
2001 (incorporated by reference to Exhibit 4.80 of the Form SB-2/A filed
on May 3, 2001).
4.30 Amended and Restated Non-Employee Directors and Consultants Retainer
Stock Plan (Amendment No. 4), dated April 27, 2001 (incorporated by
reference to Exhibit 4.1 of the Form S-8 filed on May 2, 2001).
4.31 Form of Common Stock Purchase Agreement between the company and Alpha
Venture Capital, Inc., dated July 16, 2001 (incorporated by reference to
Exhibit 4.90 of the Form SB-2 filed on July 30, 2001).
10.1 Letter of Intent between the Registrant and eConnect Caribbean. S.A.,
dated March 12, 2001 (incorporated by reference to Exhibit 10.54 of the
Form SB-2/A filed on May 2, 2001).
10.2 Acquisition Agreement between the company and eBet.com, Inc., dated
August 12, 1999 (incorporated by reference to Exhibit 2 to the Form 8-K/A
filed on November 15, 1999).
10.3 Consulting Agreement between the company and eMarkit, Incorporated, dated
August 16, 1999 (incorporated by reference to Exhibit 10.9 of the Form
10-KSB filed on May 9, 2000).
10.4 Stock Exchange Agreement between the company, La Empresa Ranco Plasticos
Limitada, Michael Lanes, and Jamie Ligator, dated August 31,1999
(incorporated by reference to Exhibit 2.1 to the Form 8-K filed on
November 16, 1999).
10.5 Amendment to Agreement to License Assets dated February 18, 1997 between
the company, Electronic Transactions & Technologies, and James Clinton,
dated September 1, 1999 (incorporated by reference to Exhibit 10.7 of the
Form SB-2/A filed on May 3, 2001).
10.6 Agreement and Plan of Acquisition between the company and PowerClick,
Inc., dated September 9, 1999 (incorporated by reference to Exhibit 10.11
of the Form 10-KSB filed on May 9, 2000).
10.7 Consulting Agreement between the company and International Investor
Relations Group, Inc., dated September 24, 1999 (incorporated by
reference to Exhibit 10.12 of the Form 10-KSB filed on May 9, 2000).
10.8 Agreement between the company and Kanakaris Communications, dated October
21, 1999 (incorporated by reference to Exhibit 10.13 of the Form 10-KSB
filed on May 9, 2000).
10.9 Letter of Commitment between the company and Rogel Technologies, dated
October 23, 1999 (incorporated by reference to Exhibit 10.14 of the Form
10-KSB filed on May 9, 2000).
10.10 Capital Contribution Agreement between the company and SafeTPay.com,
dated November 5, 1999 (incorporated by reference to Exhibit 10.15 of the
Form 10-KSB filed on May 9, 2000).
10.11 Agreement between the company and Rogel Technologies, dated November 23,
1999 (incorporated by reference to Exhibit 10.16 of the Form 10-KSB filed
on May 9, 2000).
10.12 Contract of Partnership between the company and Top Sports, S.A., dated
November 20, 1999 (incorporated by reference to Exhibit 10.17 of the Form
10-KSB filed on May 9, 2000).
10.13 Agreement between the company and Alliance Equities, dated November 29,
1999 (incorporated by reference to Exhibit 10.18 of the Form 10-KSB filed
on May 9, 2000).
10.14 Secured Promissory Note issued to the company by Electronic Transactions
& Technologies and Thomas S. Hughes, dated December 1, 1999 (incorporated
by reference to Exhibit 10.19 of the Form 10-KSB filed on May 9, 2000).
10.15 Security Agreement between the company, Electronic Transactions &
Technologies, and Thomas S. Hughes, dated December 1, 1999 (incorporated
by reference to Exhibit 10.20 of the Form 10-KSB filed on May 9, 2000).
10.16 Business Cooperation Agreement between the company and Top Sports, S.A.,
dated December 9, 1999 (incorporated by reference to Exhibit 10.21 of the
Form 10-KSB filed on May 9, 2000).
10.17 Agreement between the company and Top Sports S.A., dated December 16,
1999 (incorporated by reference to Exhibit 10.24 of the Form 10-KSB filed
on May 9, 2000).
10.18 Agreement between the company and eMarkit, Incorporated, dated December
29, 1999 (incorporated by reference to Exhibit 10.25 of the Form 10-KSB
filed on May 9, 2000).
10.19 Shares Sales Contract between the company and Paul Egan, dated January 1,
2000 (incorporated by reference to Exhibit 10.26 of the Form SB-2POS
filed on September 12, 2000).
10.20 Consultancy Agreement between the company and Paul Egan, dated January 1,
2000 (incorporated by reference to Exhibit 10.2 of the Form 10-KSB filed
on April 25, 2001).
10.21 Fee Agreement between the company and Red Iguana Trading Company, Inc.,
dated January 2, 2000 (incorporated by reference to Exhibit 10.26 of the
Form 10-QSB filed on May 30, 2000).
10.22 Consulting Services Agreement between the company and Richard Epstein,
dated January 3, 2000 (incorporated by reference to Exhibit 10.4 of the
Form 10-KSB filed on April 25, 2001).
10.23 Assignment of eSportsbet between the company and PowerClick, Inc., dated
January 7, 2000 (incorporated by reference to Exhibit 10.27 of the Form
10-QSB filed on May 30, 2000).
10.24 Letter of Intent of Negotiation and Information Exchange between
eConnect2Trade.com, Incorporated, and Empire Financial Holdings,
Incorporated, dated January 21, 2000 (incorporated by reference to
Exhibit 10.28 of the Form 10-QSB filed on May 30, 2000).
10.25 Manufacturing Agreement between the company and Asia Pacific Micro, Inc.,
dated January 21, 2000 (incorporated by reference to Exhibit 10.29 of the
Form 10-QSB filed on May 30, 2000).
10.26 Software License, Development, and Maintenance Agreement (Dominican
Republic) between the company and eFunds Corporation, dated February 3,
2000 (incorporated by reference to Exhibit 10.34 of the Form 10-QSB filed
on May 30, 2000).
10.27 Agreement between the company and Burbank Coach Works, dated February 3,
2000 (incorporated by reference to Exhibit 10.35 of the Form 10-QSB filed
on May 30, 2000).
10.28 Software License, Development, and Maintenance Agreement (Ireland)
between the company and eFunds Corporation, dated February 4, 2000
(incorporated by reference to Exhibit 10.36 of the Form 10-QSB filed on
May 30, 2000).
10.29 Acquisition Agreement between the company and PowerClick, Inc., dated
February 9, 2000 (incorporated by reference to Exhibit 10.37 of the Form
10-QSB filed on May 30, 2000).
10.30 Agreement between the company and Richard Epstein, dated February 12,
2000 (incorporated by reference to Exhibit 10.16 of the Form 10-KSB filed
on April 25, 2001).
10.31 Loan Agreement between the company and Richard Epstein, dated February
15, 2000 (incorporated by reference to Exhibit 10.38 of the Form 10-QSB
filed on May 30, 2000).
10.32 PocketPay Joint Venture Agreement between the company and Pilot Island
Publishing, Inc., dated March 1, 2000 (incorporated by reference to
Exhibit 10.39 of the Form 10-QSB filed on May 30, 2000).
10.33 Letter of Intent between the company and Real Solutions, Ltd., dated
March 9, 2000 (incorporated by reference to Exhibit 10.40 of the Form
10-QSB filed on May 30, 2000).
10.34 Amended Employment Agreement between the company and Stephen E. Pazian,
dated March 21, 2000 (incorporated by reference to Exhibit 10.42 of the
Form 10-QSB filed on May 30, 2000).
10.35 Amended and Restated Employment Agreement between the company and Stanley
C. Morris, dated March 22, 2000 (incorporated by reference to Exhibit
10.43 of the Form 10-QSB filed on May 30, 2000).
10.36 China-Singapore-Hong Kong-Macao Joint Venture Agreement between the
company, and Raymond Kessler and Li-Wang Kessler, dated March 27, 2000
(incorporated by reference to Exhibit 10.44 of the Form 10-QSB filed on
May 30, 2000).
10.37 Amended and Restated Secured Promissory Note issued to the company by
Electronic Transactions & Technologies and Thomas S. Hughes, dated March
31, 2000 (incorporated by reference to Exhibit 10.45 of the Form 10-QSB
filed on May 30, 2000).
10.38 Amended and Restated Security Agreement between the company, Electronic
Transactions & Technologies, and Thomas S. Hughes, dated March 31, 2000
(incorporated by reference to Exhibit 10.46 of the Form 10-QSB filed on
May 30, 2000).
10.39 Master Service Agreement between the company and REAL Solutions, Ltd.,
dated April 13, 2000 (incorporated by reference to Exhibit 10.48 of the
Form SB-2 POS filed on September 12, 2000).
10.40 Letter of Intent between the company and National Data Funding
Corporation, dated May 22, 2000 (incorporated by reference to Exhibit
10.50 of the Form 10-QSB/A filed on October 19, 2000).
10.41 Agreement between the company and Top Sports, S.A., dated June 20, 2000
(incorporated by reference to Exhibit 10.51 of the Form 10-QSB/A filed on
October 19, 2000).
10.42 Asset Purchase Agreement between the company and Broadband Video, Inc.,
dated October 4, 2000 (incorporated by reference to Exhibit 10.52 of the
Form SB-2/A filed on May 3, 2001).
10.43 Agreement for Sale and Plan of Reorganization between the company and
National Data Funding Corporation, dated October 29, 2000 (incorporated
by reference to Exhibit 10.53 of the Form SB-2/A filed on May 3, 2001).
10.44 Letter of Intent between the company and eConnect Caribbean. S.A., dated
March 12, 2001 (incorporated by reference to Exhibit 10.54 of the Form
SB-2/A filed on May 3, 2001).
10.45 Loan Agreement between the company and Perro Corp., dated March 26, 2001
(incorporated by reference to Exhibit 10.2 of the Form 10-QSB filed on
May 22, 2001).
10.46 Purchasing Agreement between the company and 3Pea Technologies, Inc.,
dated June 19, 2001 (incorporated by reference to Exhibit 10.56 to the
Form SB-2 filed on July 30, 2001).