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 MARCH 31, 2002
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 March 28, 2002, the Registrant had 639,263,561 shares of common stock
issued and outstanding (1).
Transitional Small Business Disclosure Format (check one): Yes No X.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION PAGE
ITEM 1. FINANCIAL STATEMENTS 3
BALANCE SHEET AS OF MARCH 31, 2002
STATEMENTS OF OPERATIONS FOR THE THREE MONTHS
ENDED MARCH 31, 2002 AND MARCH 31, 2001
STATEMENT OF STOCKHOLDERS' DEFICIT FOR THE
THREE MONTHS ENDED MARCH 31, 2002
STATEMENTS OF CASH FLOW FOR THE THREE MONTHS
ENDED MARCH 31, 2002 AND MARCH 31, 2001
NOTES TO FINANCIAL STATEMENTS
ITEM 2. PLAN OF OPERATION 8
PART II - OTHER INFORMATION 11
ITEM 1. LEGAL PROCEEDINGS 11
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 11
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 12
ITEM 5. OTHER INFORMATION 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURE
PART I.
ITEM 1. FINANCIAL STATEMENTS.
eCONNECT
BALANCE SHEET
(UNAUDITED)
March 31,
2002
-------------
ASSETS
Current assets
Accounts receivable $ 13,293
Inventory 340,024
-------------
Total current assets 353,317
Fixed assets, net 209,536
Other assets
Deposit 24,819
Other assets 593,993
-------------
Total other assets 618,812
-------------
Total assets $ 1,181,665
=============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Bank overdraft $ 78,324
Accounts payable 2,223,125
Accrued liabilities 3,163,096
Due to related parties 2,511,849
Deferred revenue 6,291
Legal settlement liability 1,248,200
Advance on equity funding line --
Notes payable 1,597,789
-------------
Total current liabilities 10,828,674
-------------
Total liabilities 10,828,674
Commitments and contingencies --
Stockholders' deficit
Common stock; $.001 par value; 750,000,000
shares authorized, 639,263,561 shares
issued and outstanding 639,264
Additional paid-in capital 157,192,901
Accumulated deficit (167,479,174)
-------------
Total stockholders' deficit (9,647,009)
-------------
Total liabilities and stockholders' deficit $ 1,181,665
=============
See Accompanying Notes to Financial Statements.
3
eCONNECT
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended March 31,
---------------------------------------
2002 2001
------------ ------------
Revenue $ 7,482 1,179
Cost of revenue 3,395 --
------------ ------------
Gross income 4,087 1,179
Operating expenses
Stock based compensation and expenses 1,598,623 1,966,051
Consulting 564,261 231,293
Public relations & Advertising 206,239 74,730
Professional fees 15,968 117,858
Research and development 27,650 54,300
Wages 89,500 466,356
Amortization and depreciation 22,744 258,343
General and administrative 245,241 236,926
------------ ------------
Total operating expenses 2,770,226 3,405,857
------------ ------------
Net loss from operations (2,766,139) (3,404,678)
Other expenses
Interest expense (46,105) (167,602)
Cancellation fee -- (526,212)
Legal settlement (4,259) --
------------ ------------
Total other expenses (50,364) (693,814)
------------ ------------
Net loss before provision for income taxes (2,816,503) (4,098,492)
Provision for income taxes -- --
------------ ------------
Net loss from continuing operations (2,816,503) (4,098,492)
Discontinued operations
Loss from discontinued gaming operations
from January 1, 2001 to March 31, 2001
(net of income tax benefit which is fully
allowed for) -- (4,170)
------------ ------------
Net loss $ (2,816,503) $ (4,102,662)
============ ============
Earning per share
Loss from continuing operations $ (0.01) $ (0.02)
Loss from discontinued operations -- --
------------ ------------
Net loss $ (0.01) $ (0.02)
============ ============
Basic and diluted weighted average
common shares outstanding 543,209,671 229,955,475
============ ============
See Accompanying Notes to Financial Statements.
4
eCONNECT
STATEMENT OF STOCKHOLDERS' DEFICIT
(UNAUDITED)
Common Stock
---------------------- Additional Total
Number of Paid-in Accumulated Stockholders'
Shares Amount Capital Deficit Deficit
----------- --------- ------------- --------------- -------------
Balance, December 31, 2001 471,931,621 $ 471,931 $ 153,967,061 $ (164,662,671) $ (10,223,679)
Common shares issued for
cash to Alpha Venture
Capital, Inc., net of
offering costs of $266,674 26,668,752 26,669 436,131 -- 462,800
Common shares issued in satisfaction
of advance on equity funding
line 1,666,667 1,667 48,333 -- 50,000
Common shares issued for cash,
net of offering costs of $289,654 43,334,906 43,335 443,265 -- 486,600
Common shares issued for cash
related to exercise of options
and warrants, $0.01 per share 27,800,000 27,800 255,450 -- 283,250
Common shares issued in satisfaction
of due to related party,
$0.02 per share 15,384,615 15,385 284,615 -- 300,000
Common shares issued for stock
based compensation, weighted average
$0.02 per share 39,851,122 39,851 814,252 -- 854,103
Warrants granted for services -- -- 651,000 -- 651,000
Common shares issued in satisfaction
of notes payable, including interest
of $93,520 and accrued liabilities
of $36,900 12,625,878 12,626 292,794 -- 305,420
Net loss -- -- -- (2,816,503) (2,816,503)
----------- ---------- ------------- --------------- -------------
Balance, March 31, 2002 639,263,561 $ 639,264 $ 157,192,901 $ (167,479,174) $ (9,647,009)
=========== ========== ============= =============== =============
See Accompanying Notes to Financial Statements.
5
eCONNECT
STATEMENTS OF CASH FLOW
(UNAUDITED)
For the three months ended March 31,
----------------------------------------
2002 2001
------------- -------------
Cash flows from operating activities:
Net loss $ (2,816,503) $ (4,102,662)
Adjustments to reconcile net loss to net
cash used by operating activities:
Amortization and depreciation 22,744 258,343
Stock based compensation 1,598,623 1,966,051
Changes in operating assets and liabilities:
Change in accounts receivable (13,293) (32,123)
Change in inventory (160,005) --
Change in other assets (223,484) (166,412)
Change in bank overdraft 48,101 --
Change in accounts payable 95,613 208,613
Change in accrued liabilities 127,779 581,620
Change in due to consultants -- 22,000
Change in due to related parties 168,300 351,650
Change in deferred revenue 5,617 --
Change in legal settlement liability (156,500) --
------------- -------------
Net cash used by operating activities (1,303,008) (912,920)
Cash flows from investing activities:
Purchase of fixed assets (4,642) (7,800)
------------- -------------
Net cash used by investing activities (4,642) (7,800)
Cash flows from financing activities:
Proceeds from issuance of notes payable 100,000 150,000
Principal payments on notes payable (25,000) (460,000)
Proceeds from issuance of common stock 1,232,650 1,282,363
------------- -------------
Net cash provided by financing activities 1,307,650 972,363
------------- -------------
Net change in cash -- 51,643
Cash, beginning of period -- 13,007
------------- -------------
Cash, end of period $ -- $ 64,650
============= =============
Supplemental disclosure of cash flow:
Cash paid for interest $ 46,105 $ 121,493
============= =============
Cash paid for taxes $ -- $ 800
============= =============
Schedule of non-cash investing and financing activities:
15,384,615 common shares issued in satisfaction
of due to related parties $ 300,000 $ --
============= =============
1,666,667 common shares issued in satisfaction
of advance on equity funding line $ 50,000 $ --
============= =============
12,625,878 common shares issued in satisfaction of notes payable,
not including interest of $93,520 $ 211,900 $ --
============= =============
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
============= =============
See Accompanying Notes to Financial Statements.
6
eCONNECT
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying 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 accounting principles generally accepted in the
United States for complete financial statements. The financial statements
should be read in conjunction with the Form 10-KSB for the year ended
December 31, 2001 of eConnect ("the Company").
The results of operations for the interim periods shown in this report are
not necessarily indicative of results to be expected for the full year. In
the opinion of management, the information contained herein reflects all
adjustments necessary to make the results of operations for the interim
periods a fair statement of such operation. All such adjustments are of a
normal recurring nature.
2. OTHER ASSETS
Other assets consist of the following as of March 31, 2002:
Deposits for the purchase of inventory $ 540,000
Miscellaneous 53,993
----------------
Total other assets $ 593,993
================
3. LEGAL SETTLEMENT LIABILITIES
Former President and Chief Operating Officer for the Company - During March
------------------------------------------------------------
2002, the Company made an installment of $30,000 to the former president
and chief operating officer of the Company. As of March 31, 2002, the
Company had a remaining unpaid balance of $760,000 which has been included
as part of legal settlement liabilities totaling $1,248,200.
Goldstake Enterprises, Inc. - During the three months ended March 31, 2002,
---------------------------
the Company made installments totaling $111,500 to Goldstake Enterprises,
Inc. As of March 31, 2002, the Company had a remaining unpaid balance of
$438,200 which has been included as part of legal settlement liabilities
totaling $1,248,200.
Other settlements - During the three months ended March 31, 2002, the
-----------------
Company made installments totaling $15,000 related to other settlements. As
of March 31, 2002, the Company had a remaining unpaid balance of $50,000
which has been included as part of legal settlement liabilities totaling
$1,248,200.
4. STOCK BASED COMPENSATION AND EXPENSES
For the three months ended March 31, 2002 and 2001, the Company incurred
expenses resulting from stock warrants and common stock issued totaling
$1,598,623 and $1,966,051, respectively. The following table summarizes the
Company's stock based compensation and expenses activities based on the
accounts shown on the statements of operations:
Three months ended March 31,
2002 2001
--------------- ----------------
Consulting $ 1,142,708 $ 1,581,555
Penalty fee 292,500 --
Interest 163,415 384,496
--------------- ----------------
Total stock based
compensation $ 1,598,623 $ 1,966,051
=============== ================
5. RELATED PARTY TRANSACTIONS
Satisfaction of due to related parties - During February 2002, the Company
--------------------------------------
issued 15,384,615 shares of the Company's common stock to satisfy balances
due Richard Epstein and Alliance Equities (hereafter referred to as
"Alliance"), totaling $300,000. As of March 31, 2002, the Company borrowed
an additional $50,000 from Alliance which has been included as part of due
to related parties totaling $2,511,849.
Richard Epstein stock warrants - During February 2002, Richard Epstein
------------------------------
exercised stock warrants to purchase 6,800,000 shares of the Company's
common stock for $68,000.
Due to related parties - During the three months ended March 31, 2002, the
----------------------
Company borrowed approximately $118,300 from Electronic Transaction
Technology ("ET&T"), a privately held corporation with a majority interest
owned by Thomas S. Hughes, President of the Company which has been included
as part of due to related parties totaling $2,511,849. The balance bears no
interest, is unsecured and due on demand.
During the three months ended March 31, 2002, the Company borrowed an
additional $50,000 from Alliance which has been included as part of due to
related parties totaling $2,511,849. The balance bears no interest, is
unsecured and due on demand.
ET&T super-voting rights - In February 2002, the board of directors of
------------------------
eConnect passed a resolution granting ET&T super-voting rights in keeping
with the original formation of eConnect in February 1997. This allows ET&T,
which is controlled by Thomas S. Hughes, president, director, and
stockholder of the Company, to have a controlling vote on issues before the
Board of Directors.
Penalty fee - During February 2002, the Company issued 15,000,000 shares of
-----------
the Company's common stock to Alliance in satisfaction of a penalty expense
totaling $292,500. The Company agreed to pay Alliance a penalty of
15,000,000 shares due to delays in issuances of its common stock to
Alliance.
6. STOCK OPTIONS
Stock options granted to consultants - During January 2002, the Company
------------------------------------
granted stock options to purchase 21,000,000 shares of the Company's common
stock with an exercise price equal to 50% of the closing bid price of its
common stock upon the date of exercise. These stock options were granted in
connection with a consulting agreement. The Company has estimated the fair
value of the warrant using the Black-Scholes pricing-model with the
following assumptions: no dividend yield; expected volatility of 297%; risk
free interest rates of 1.689%; and an expected life of 2 months.
Compensation under the grant totaled $651,000 for the three months ended
March 31, 2002. During February and March 2002, the 21,000,000 options were
exercised for $215,250.
7. FORMATION OF SUBSIDIARY
eGS, Inc. - During March 2002, the Company incorporated eGS, Inc. in the
---------
State of Nevada to serve as the Company's internet agent for future state
regulated and licensed games of chance and skill. The Company currently
owns 100% of eGS, Inc. however the Company has declared a stock dividend to
all of its stockholders of record as of April 3, 2002. The stockholders are
to receive one common share of eGS, Inc. for every 100 shares held of the
Company's common stock as of April 3, 2002. The Company intends to maintain
a majority ownership of the eGS, Inc. eGS, Inc. is in the start-up phase,
therefore no revenue has been recorded and all start-up costs have been
expensed. As of March 31, 2002, eGS, Inc. has no assets or liabilities.
8. GOING CONCERN
The Company incurred a net loss of approximately $2,817,000 for the three
months ended March 31, 2002. The Company's current liabilities exceed
its current assets by approximately $10,475,400 as of March 31, 2002.
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.
7
ITEM 2. PLAN OF OPERATION
Twelve Month 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
"present" transactions over the Internet. These transactions are initially
received by the "Bank Eyes Only" System and then routed to certified credit card
gateway processors including VeriSign and ePayments processing.
Initially, the Company licensed software from Connex but soon realized
that it did not need such an extensive software support system. A complete
in-house solution has since been developed called the Bank Eyes Only ("BEO")
system. Currently, the Company has completed version 1.0 of the BEO System,
which allows merchants to receive transactions from consumers using the
eCashPad.
The Company's web site is: www.econnectholdings.com. On November 1st,
2001, the Company began distribution of the eCashPad. To date, 1,825 eCashPads
have been distributed to consumers. The eCashPad is presently being sold as a
limited offer for $19.95, with suggested retail price of $59.95.
Twelve Month Plan of Execution
The company's eCashPad product and BEO processing service is
positioned effectively to take advantage of market needs for secure internet
payments. The company believes that "Bank Eyes Only" transaction processing
system will effectively address Internet consumers' concerns regarding personal
and financial information security. The company has published the "Bank Eyes
Only" Web merchant install download documentation. Substantial numbers of web
merchants are joining the growing numbers of those with the capability of
accomplishing "Bank Eyes Only" transactions. This is constantly adding more
"Bank Eyes Only" accessible web merchants and is increasing the monthly usage of
the eCashPad.
The marketing strategies for the organization are to acquire merchants
through internal profession sales force, external distributors, and managed
resellers; and acquire consumers through direct distribution, retail, and
managed resellers.
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 private label eCashPads by the vendors to
their consumer base. Further registration of "Bank Eyes Only" web merchants will
likewise be pursued by a team of specialists who understand a specific industry
such as phone, cable or collections. These team of specialists will develop the
pertinent "Bank Eyes Only" application for that industry and will cultivate
strategic alliances within their specific industry. The company is projecting an
average transaction revenue of 50 cents per usage which is charged to the web
merchant.
8
The company envisions the usage of the eCashPad to affect Internet
cash wagers by either ATM card with PIN or by chip card payments. The Company
recently formed a subsidiary called eGS, Inc. to exploit this market. eGS will
provide support services for State Regulated and licensed Internet companies
offering games of skill and games of chance whereby players may use their
eCashPad with ATM card and PIN entry to effect on line cash transactions. eGS is
being spun off by the Company to shareholders as of the record date. The
spin-off will occur on May 15, 2002.
The Company expects to implement the additional service of ATM card
with PIN entry (debit over the internet) transactions during the second quarter
of 2002. The Company has no agreements with ATM card networks to date; however,
representatives from STAR ATM card network have sent eConnect a proposal to
begin a pilot program. Currently, the Company is seeking a Star member acquiring
financial institution to sponsor a web merchant that will receive an ecnrypted
PIN-entered on line Internet transaction. The Company is diligently working on
this and is in discussions with various financial institutions. Until the
Company obtains a STAR member sponsor bank formally sponsoring the web
merchants, the proposed pilot will not start. Investors are cautioned against
attributing undue certainty to management's assessments.
Capital Resources
The company expects to maintain enough cash for its operations and
business plan over the next twelve months. Commitments over that period include
approximately $20.0M. The company will from time to time elect to access equity
funding from Alpha. The company expects to continue and increase production of
revenues over the next 12 months from sales of eCashPads and BEO Processing
services. The Company will raise additional equity funding if necessary.
All recent acquisitions have been wound down, and no further expenses
are expected to occur in connection with any of these. The company was required
to write-off investments in Power Click and Top Sports that totaled $2,500,000.
Nothing that results from these transactions is expected to have any adverse
effect on the business plan of the company or its core operations.
Definitions
"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 through the Company's server 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. "Bank Eyes
Only" transactions are processed over the Internet without the cardholder
account information being stored at the merchant's web site, nor does the
merchant have access to the consumer's bank card information.
9
"eCashPad" refers to the smart card and magnetic stripe card
read/write terminal with encrypted PIN entry utilized for remote capture of
transaction authentication. The reader utilizes USB to connect to a Personal
Computer running the windows operating system. The reader is compliant with
International Standards Organization requirements for magnetic stripe and smart
card payment capture.
Forward Looking Statements.
This report 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."
10
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Previously reported.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
Sales of Unregistered Securities.
Sales of unregistered securities occurring on or before September 19, 2001,
have been previously reported.
Considerations Shares Value($)
-------------- ------ --------
10/4/2001 Richard Parnes Free Trading Options 100,000 600
10/3/2001 Rick Wilson 144 Restricted Finder's fee 300,000 10,276
10/3/2001 Wayne Hall 144 Restricted Late fees 100,000 3,425
10/3/2001 Don Yarter 144 Restricted Late fees 100,000 3,425
10/3/2001 Chris Jensen 144 Restricted Late fees 100,000 3,425
10/3/2001 Gerard Vanderbrug 144 Restricted Consulting 800,000 27,403
10/31/2001 Encrypt2Pay 144 Restricted Consulting 1,000,000 143,730
10/31/2001 Charles Yourshaw 144 Restricted Loan repayment 650,000 120,467
10/31/2001 Donald Mudd 144 Restricted Late fees 100,000 24,390
10/31/2001 Jim Ball 144 Restricted Late fees 20,000 15,854
10/31/2001 John Fishbein 144 Restricted Late fees 50,000 2,439
10/11/2001 Quinn Brady 144 Restricted Consulting 1,250,000 488
10/11/2001 Robert Masters 144 Restricted Consulting 1,000,000 1,220
11/26/2001 Chris Jensen 144 Restricted Late fees 900,000 38,835
11/26/2001 Don Yarter 144 Restricted Late fees 900,000 31,068
11/26/2001 Rick Wilson 144 Restricted Late fees 425,000 23,255
11/26/2001 John Hogle 144 Restricted Consulting 100,000 23,255
11/26/2001 Clyde Bawden 144 Restricted Consulting 100,000 10,982
11/26/2001 Americlaim 144 Restricted Loan incentive 75,000 2,584
11/26/2001 Mallard Management 144 Restricted Loan incentive 75,000 2,584
12/20/2001 Hughes Net Income Ch 144 Restricted 3rd quarter issuance (9,000,000) 1,938
12/20/2001 Richard Epstein 144 Restricted For cash 19,000,100 1,938
2/12/2002 Richard Epstein 144 Restricted For Cash 20,000,000 390,000
2/12/2002 Alliance Equities 144 Restricted For Cash 30,000,000 585,000
2/12/2002 Mark Baum Free Trading For Cash/Consulting 3,250,000 71,500
2/12/2002 Paul Kessler Free Trading For Cash/Consulting 2,000,000 44,000
2/19/2002 Alpha Venture Capital 144 Restricted Escrow 76,500,000 --
2/19/2002 Richard Epstein 144 Restricted For Cash 20,519,521 266,754
2/28/2002 Alberto Barrera 144 Restricted Consulting 2,000,000 47,610
2/28/2002 William Haseltine Free Trading Consulting 250,000 6,613
3/6/2002 Mark Baum Free Trading For Cash/Consulting 3,850,000 77,000
3/6/2002 Paul Kessler Free Trading For Cash/Consulting 3,850,000 77,000
3/8/2002 Mark Baum Free Trading For Cash/Consulting 4,025,000 80,500
3/8/2002 Paul Kessler Free Trading For Cash/Consulting 4,025,000 80,500
3/11/2002 Americlaim Free Trading Loan repayment 4,000,000 96,760
3/11/2002 Robert Graham Free Trading Consulting 250,000 6,048
3/11/2002 David Weiler Free Trading Loan repayment 10,000,000 241,900
3/11/2002 Mallard Management Free Trading Loan repayment 4,000,000 96,760
3/11/2002 Jerry Van de Brug Free Trading Consulting 827,000 20,005
3/11/2002 David Weiler 144 Restricted Consulting 3,000,000 65,313
3/11/2002 Bryan Bagdaddy 144 Restricted Late fees 600,000 13,063
3/11/2002 Charles Yourshaw 144 Restricted Consulting 1,200,000 26,125
3/11/2002 Gordon Lee 144 Restricted Consulting 1,000,000 21,771
3/11/2002 Elle Travis 144 Restricted Consulting 400,000 8,708
3/11/2002 Quinn Brady 144 Restricted Late fees 625,000 13,607
3/11/2002 Heather Brady 144 Restricted Late fees 100,000 2,177
3/18/2002 Mark Levinson Free Trading Consulting 4,000,000 92,920
3/18/2002 Richard Epstein 144 Restricted Consulting 1,500,000 31,361
3/11/2002 Steve McRae 144 Restricted Consulting 200,000 4,354
3/11/2002 LJ Yapel Manzanares 144 Restricted Consulting 200,000 4,354
3/11/2002 Edward Forde 144 Restricted Consulting 25,000 544
3/11/2002 Daniel Douk 144 Restricted Consulting 25,000 544
3/13/2002 Chris Jensen Free Trading Consulting 1,000,000 23,550
3/28/2002 Americlaim 144 Restricted Late fees 562,500 10,616
3/28/2002 Mallard Management 144 Restricted Late fees 562,500 10,616
3/28/2002 John Burke 144 Restricted Late fees 50,000 944
3/28/2002 Gordon Gisser 144 Restricted Consulting 100,000 1,887
3/28/2002 Terry Roslington 144 Restricted Late fees 1,000,000 18,873
3/19/2002 Richard Epstein 144 Restricted For Cash 10,000,000 195,000
No commissions or fees were paid in connection with these sales.
These transactions were exempt from the registration requirements under the
Securities Act of 1933 based on Rule 506 of Regulation D, and similar provisions
under state securities laws and regulations by the fact that:
... The sales were made to sophisticated investors as defined in Rule 502;
... The information specified in paragraph (b)(2)(ii)(B) and paragraph
(b)(2)(ii)(C) of this section was provided to each investor;
... The company gave each purchaser the opportunity to ask questions and receive
answers concerning the terms and conditions of the offering and to obtain any
additional information that the Company possessed or could acquire without
unreasonable effort or expense that is necessary to verify the accuracy of
the information furnished;
... At a reasonable time prior to the sale of securities, the company advised the
purchasers of the limitations on resale in the manner contained in paragraph
Rule 502(d)(2) of this section;
... Neither the company nor any person acting on its behalf sold the securities
by any form of general solicitation or general advertising;
... The company exercised reasonable care to assure that the purchasers of the
securities are not underwriters within the meaning of section 2(11) of the
Securities Act of 1933 in compliance with Rule 502(d).
11
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
A Special Meeting of Shareholders was held January 28, 2002, at which time the
authorized capital of the Company was increased from 700,000,000 to 800,000,000.
This was approved by a vote of 35,373,113 for and 61,875 against. Since that
meeting, the authorized capital of the Company has been increased to
850,000,000. This was accomplished by obtaining written consent to the action of
60% of the voting power of the Company.
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. EXHIBITS AND REPORTS ON FORM 8-K.
Exhibits.
12
Exhibits included or incorporated by reference herein are set forth in
the attached Exhibit Index.
Reports on Form 8-K.
A Form 8-K was filed by the Company on February 20, 2002. The Company responded
in that Form to Items 1 and 5.
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: May 14, 2002 By: /s/ Thomas S. Hughes
------------------------------------
Thomas S. Hughes, Chairman, CEO
EXHIBIT INDEX
Exhibit Description
No.
Exhibit No. Description
- ----------- -----------
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).
13
EXHIBIT INDEX
Exhibit No. Dexcription
- ----------- -----------
4.1 Class A Warrant Agreement (incorporated by reference to Exhibit 4.2
of the Form S-1 filed on October 28, 1993).
4.2 Retainer Stock Plan for Non-Employee Directors and Consultants,
dated April 26, 1999 (incorporated by reference to Exhibit 4.1 of
the Form S-8 filed on May 14, 1999).
4.3 Common Stock Purchase Agreement between the company and Alpha Venture
Capital, Inc., dated October 6, 2001 (incorporated by reference to the
SB-2 filed on October 9, 2001).
10.1 Promissory Note between Electronic Transactions & Technologies and
Unipay, Inc., dated April 26, 1999 (incorporated by reference to
Exhibit 10.5 of the Form 10-KSB filed on May 9, 2000).
10.2 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).
10.3 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).
10.4 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).
10.5 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).
10.6 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).
10.7 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).
10.8 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).
10.9 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).
10.10 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).
10.11 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).
10.12 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).
10.13 Purchasing Agreement between the company and 3Pea Technologies, Inc.,
dated June 19, 2001 (incorporated by reference to Exhibit 10.56 of the
Form SB-2 filed on July 30, 2001).
99.1 Patents: dated August 9, 1994, May 19, 1998, and September 15, 1998
(incorporated by reference to Exhibit 99.1 of the Form 10-KSB filed on
May 9, 2000).
99.2 Trademarks: filed March 31, 1997, February 16, 1999, May 6, 1999, May
24, 1999, June 3, 1999, June 4, 1999, August 12, 1999, and September
28, 1999 (incorporated by reference to Exhibit 99.2 of the Form 10-KSB
filed on May 9, 2000).
99.3 Trademark filed on March 15, 2000 (incorporated by reference to
Exhibit 99.3 of the Form 10-QSB filed on May 30, 2000).