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, 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 July 30, 2002, the Registrant had 41,497,059 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 JUNE 30, 2002
STATEMENTS OF OPERATIONS FOR THE THREE MONTHS
ENDED JUNE 30, 2001
STATEMENT OF STOCKHOLDERS' DEFICIT FOR THE
THREE MONTHS ENDED JUNE 30, 2002
STATEMENTS OF CASH FLOW FOR THE THREE MONTHS
ENDED JUNE 30, 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)
June 30,
2002
------------------
ASSETS
Current assets
Inventory $ 187,264
------------------
Total current assets 187,264
Fixed assets, net 186,793
Other assets
Deposit 24,819
Other assets 76,655
------------------
Total other assets 101,474
------------------
Total assets $ 475,531
==================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Bank overdraft $ 68,518
Accounts payable 2,411,327
Accrued liabilities 3,258,434
Due to related parties 2,606,647
Deferred revenue 6,291
Legal settlement liability 4,658,200
Advance on equity funding line --
Notes payable 1,394,868
------------------
Total current liabilities 14,404,285
------------------
Total liabilities 14,404,285
Commitments and contingencies --
Stockholders' deficit
Common stock; $.001 par value; 750,000,000
shares authorized, 7,989,583 shares
issued and outstanding 7,990
Additional paid-in capital 202,416,072
Accumulated deficit (216,352,816)
------------------
Total stockholders' deficit (13,928,754)
------------------
Total liabilities and stockholders' deficit $ 475,531
==================
See Accompanying Notes to Financial Statements
eCONNECT
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended June 30,
-------------------------------------------
2002 2001
-------------------- --------------------
Revenue $ 1,529 $ 425
Cost of revenue 909 --
-------------------- --------------------
Gross income 620 425
Operating expenses
Stock based compensation and expenses 43,960,385 2,410,142
Consulting 382,313 334,356
Public relations & advertising 166,351 8,430
Professional fees 65,116 223,799
Research and development (1,260) --
Wages 74,886 533,008
Amortization and depreciation 22,743 413,125
General and administrative 161,408 291,292
-------------------- --------------------
Total operating expenses 44,831,942 4,214,152
-------------------- --------------------
Net loss from operations (44,831,322) (4,213,727)
Other income (expense)
Interest income -- 18,659
Interest expense (30,870) (776,823)
Loss on investments -- (233,770)
Cancellation fee -- --
Legal settlement (4,010,650) (1,739,706)
-------------------- --------------------
Total other income (expense) (4,041,520) (2,731,640)
-------------------- --------------------
Net loss before provision for income taxes (48,872,842) (6,945,367)
Provision for income taxes -- --
-------------------- --------------------
Net loss from continuing operations (48,872,842) (6,945,367)
Discontinued operations
Loss from discontinued gaming operations
from January 1, 2001 to June 30, 2001
(net of income tax benefit which is fully
allowed for) -- (160,107.00)
Estimated loss on disposal of gaming operations
including losses during the phase-out period
(net of income tax benefit which is fully allowed for) -- (96,661.00)
-------------------------------------------
-- (256,768.00)
Net loss $ (48,872,842) $ (7,202,135)
==================== ====================
Earning per share
Loss from continuing operations $ (6.92) $ (2.55)
Loss from discontinued operations -- (0.06)
Loss from abandonment of gaming operations -- (0.04)
-------------------- --------------------
Net loss $ (6.92) $ (2.64)
==================== ====================
Basic and diluted weighted average
common shares outstanding 7,060,312 2,720,555
==================== ====================
Six months ended June 30,
-------------------------------------------
2002 2001
-------------------- --------------------
Revenue $ 9,011 1,604
Cost of revenue 4,304 --
-------------------- --------------------
Gross income 4,707 1,604
Operating expenses
Stock based compensation and expenses 45,559,008 4,376,193
Consulting 946,574 565,649
Public relations & advertising 372,590 83,160
Professional fees 81,084 341,657
Research and development 26,390 54,300
Wages 164,386 999,364
Amortization and depreciation 45,487 671,468
General and administrative 406,649 477,409
-------------------- --------------------
Total operating expenses 47,602,168 7,569,200
-------------------- --------------------
Net loss from operations (47,597,461) (7,567,596)
Other income (expense)
Interest income -- 18,659
Interest expense (76,975) (944,425)
Loss on investments -- (233,770)
Cancellation fee -- (526,212)
Legal settlement (4,014,909) (1,739,706)
-------------------- --------------------
Total other income (expense) (4,091,884) (3,425,454)
-------------------- --------------------
Net loss before provision for income taxes (51,689,345) (10,993,050)
Provision for income taxes (800) --
-------------------- --------------------
Net loss from continuing operations (51,690,145) (10,993,050)
Discontinued operations
Loss from discontinued gaming operations
from January 1, 2001 to June 30, 2001
(net of income tax benefit which is fully
allowed for) -- (215,086.00)
Estimated loss on disposal of gaming operations
including losses during the phase-out period
(net of income tax benefit which is fully allowed for) -- (96,661.00)
-------------------------------------------
-- (311,747.00)
Net loss $ (51,690,145) $ (11,304,797)
==================== ====================
Earning per share
Loss from continuing operations $ (8.96) $ (4.22)
Loss from discontinued operations -- (0.08)
Loss from abandonment of gaming operations -- (0.04)
-------------------- --------------------
Net loss $ (8.96) $ (4.34)
==================== ====================
Basic and diluted weighted average
common shares outstanding 5,767,809 2,607,943
==================== ====================
See Accompanying Notes to Financial Statements
eCONNECT
STATEMENT OF STOCKHOLDERS' DEFICIT
(UNAUDITED)
Common Stock Additional
-------------------------------
Number of Paid-in
Shares Amount Capital
-------------- -------------- -------------------
Balance, December 31, 2001 4,719,316 $ 4,719 $ 154,434,273
Common shares issued for cash to Alpha Venture
Capital, Inc., net of offering costs of $266,674 266,688 267 462,533
Common shares in satisfaction of advance
on equity funding line 16,667 17 49,983
Common shares issued for cash, net of
offering costs of $301,678 1,217,106 1,217 865,238
Common shares issued for cash related to exercise of
options and warrants, $0.01 278,000 278 282,972
Common shares issued in satisfaction of due to related party 153,846 154 299,846
Common shares issued for stock based compensation 1,056,201 1,056 1,580,705
Warrants granted for services -- -- 43,854,730
Common shares issued in satisfaction of notes payable,
including interest of $122,517 and accrued liabilities of $36,900 281,759 282 585,792
Net loss -- -- --
-------------- -------------- -------------------
Balance, June 30, 2002 7,989,583 $ 7,990 $ 202,416,072
============== ============== ===================
Total
Accumulated Stockholders'
Deficit Deficit
--------------------- ------------------
Balance, December 31, 2001 $ (164,662,671) $ (10,223,679)
Common shares issued for cash to Alpha Venture
Capital, Inc., net of offering costs of $266,674 -- 462,800
Common shares in satisfaction of advance
on equity funding line -- 50,000
Common shares issued for cash, net of
offering costs of $301,678 -- 866,455
Common shares issued for cash related to exercise of
options and warrants, $0.01 -- 283,250
Common shares issued in satisfaction of due to related party -- 300,000
Common shares issued for stock based compensation -- 1,581,761
Warrants granted for services -- 43,854,730
Common shares issued in satisfaction of notes payable,
including interest of $122,517 and accrued liabilities of $36,900 -- 586,074
Net loss (51,690,145) (51,690,145)
--------------------- ------------------
Balance, June 30, 2002 $ (216,352,816) $ (13,928,754)
===================== ==================
See Accompanying Notes to Financial Statements
eCONNECT
STATEMENTS OF CASH FLOW
(UNAUDITED)
For the six months ended June 30,
---------------------------------------------
2002 2001
------------------------ ---------------
Cash flows from operating activities:
Net loss $ (51,690,145) $ (11,304,797)
Adjustments to reconcile net loss to net
cash used by operating activities:
Amortization and depreciation 45,487 671,468
Stock based compensation 45,559,008 4,376,193
Cancellation fee -- 526,212
Loss on investments -- 233,770
Estimated loss on disposal of gaming operations -- 96,661
Changes in operating assets and liabilities:
Change in accounts receivable -- 14,157
Change in inventory (7,245) --
Change in other assets 293,854 86,610
Change in bank overdraft 38,295 --
Change in accounts payable 361,771 543,243
Change in accrued liabilities 223,117 173,495
Change in due to consultants -- 22,000
Change in due to related parties 293,878 1,465,639
Change in deferred revenue 5,617 --
Change in legal settlement liability 3,258,500 1,605,000
------------------ ---------------------
Net cash used by operating activities (1,617,863) (1,490,349)
Cash flows from investing activities:
Purchase of fixed assets (4,642) (31,884)
------------------ ---------------------
Net cash used by investing activities (4,642) (31,884)
Cash flows from financing activities:
Proceeds from issuance of notes payable 38,000 237,500
Principal payments on notes payable (28,000) (685,000)
Proceeds from issuance of common stock 1,612,505 1,956,726
------------------ ---------------------
Net cash provided by financing activities 1,622,505 1,509,226
------------------ ---------------------
Net change in cash -- (13,007)
Cash, beginning of period -- 13,007
------------------ ---------------------
Cash, end of period $ -- $ --
================== =====================
Supplemental disclosure of cash flow:
Cash paid for interest $ 46,105 $ 107,000
================== =====================
Cash paid for taxes $ -- $ --
================== =====================
Schedule of non-cash investing and financing activities:
6,250,000 common shares issued in satisfaction
of accounts payable $ 117,956 $ --
================== =====================
2,000,000 common shares issued in satisfaction
of due to related parties $ 30,780 $ --
================== =====================
500,000 common shares issued in satisfaction
of settlement liabilities $ 5,000 $ --
================== =====================
6,800,000 common shares issued in satisfaction of notes payable,
not including interest of $28,997 $ 97,921 $ --
================== =====================
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 and accrued liabilities of $36,900 $ 175,000 $ --
================== =====================
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
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 Forms 10-KSB for the year ended
December 31, 2001 of eConnect (the "Company").
The interim financial information is unaudited. In the opinion of
management, all adjustments necessary to present fairly the financial
position as of June 30, 2002 and the results of operations and cash flows
presented herein have been included in the financial statements. Interim
results are not necessarily indicative of results of operations for the
full year.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
1-for-100 reverse stock split - During July 2002, the Company's Board of
Directors adopted a resolution whereby it approved a 1-for-100 reverse
stock split of the issued and outstanding shares of common stock.
Accordingly, the accompanying financial statements have been retroactively
restated to reflect the 1-for-100 reverse stock split as if such forward
stock split occurred as of the Company's date of inception.
2. LEGAL SETTLEMENT LIABILITIES
a. 3Pea Technologies, Inc. - During June 2002, the Company reached a
settlement with 3Pea Technologies, Inc., a company substantially owned
by the son-in-law of Thomas S. Hughes, Chief Executive Officer and
Director of the Company, whereby the Company agreed to issue 5,000,000
shares of the Company's common stock valued at $2,050,000 and two
installments of $190,000 to be made during July 2002. As of June 30,
2002, the Company's balance of $2,430,000 has been included as part of
the total legal settlement liability of $4,658,200 at June 30, 2002.
b. Former President and Chief Operating Officer for the Company - During
March 2002, the Company made an installment payment 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 $820,000
which has been included as part of legal settlement liabilities
totaling $4,658,200.
c. Goldstake Enterprises, Inc. - During the six months ended June 30,
2002, the Company made installment payments totaling $126,500 to
Goldstake Enterprises, Inc. As of June 30, 2002, the Company had a
remaining unpaid balance of $353,200 which has been included as part
of the total legal settlement liability of $4,658,200 at June 30,
2002.
During June 2002, the Company reached an additional settlement with
Goldstake Enterprises, Inc. and Las Vegas International Basketball
League Franchise, LLC, whereby the Company agreed to pay $1,000,000
with interest commencing on August 1, 2003 at an annual interest rate
of 8%. Monthly payments of $25,000 are scheduled to commence on August
1, 2002. As of June 30, 2002, the additional settlement of $1,000,000
has been included as part of legal settlement liabilities totaling
$4,658,200. Pursuant to the settlement agreement, the Company issued
300,000 shares of the Company's common stock and will issue up to
30,000,000 additional shares of the Company's common stock to satisfy
all remaining debts totaling $1,353,200 as of June 30, 2002, between
the Company and Goldstake Enterprises, Inc.
eCONNECT
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
d. Other settlements - During the six months ended March 31, 2002, the
Company made installments totaling $20,000 related to other
settlements. As of June 30, 2002, the Company had a remaining unpaid
balance of $55,000 which has been included as part of the total legal
settlement liability of $4,658,200 at June 30, 2002.
3. STOCK BASED COMPENSATION
For the three months ended June 30, 2002 and 2001, the Company incurred
expenses resulting from stock warrants and common stock issued totaling
$43,960,385 and $2,410,142, respectively. For the six months ended June 30,
2002 and 2001, the Company incurred expenses resulting from stock warrants
and common stock issued totaling $45,559,008 and $4,376,193, respectively.
The following table summarizes the Company's stock based compensation
activities based on the accounts shown on the statements of operations:
Three months ended June 30, Six months ended June 30,
--------------------------------- ---------------------------------
2002 2001 2002 2001
--------------- ---------------- --------------- ----------------
Consulting $ 361,134 $ 2,041,136 $ 1,503,842 $ 3,622,691
Penalty fee -- -- 292,500 --
Legal settlement 337,735 -- 337,735 --
Finance fee 43,203,730 -- 43,203,730 --
Interest 57,786 369,006 221,201 753,502
--------------- ---------------- --------------- ----------------
Total stock based
compensation $ 43,960,385 $ 2,410,142 $ 45,559,008 $ 4,376,193
=============== ================ =============== ================
4. RELATED PARTY TRANSACTIONS
Due to related parties - As of June 30, 2002, due to related parties
totaling $2,606,647 are comprised of the following:
Common stock due to ET&T related 65,220 shares provided by
ET&T for use by the Company $ 163,846
Advances from ET&T, unsecured, bearing no interest 106,370
Advances from Alliance Equities (company controlled by Richard Epstein,
a significant stockholder of the Company), unsecured, bearing
no interest 187,508
Deposit related to the purchase of eCashPad terminals 250,000
Value of remaining 18,000 common stocks and warrants for 25,000 shares
of the Company's common stock to be issued to Paul Egan (a
stockholder of the Company) related to the fiscal year
1999 acquisition of Top Sports, S.A. 261,228
Advances from an affiliate, unsecured, due on demand and bearing
no interest 709,785
Advances from Paul Egan, unsecured, due on demand, and bearing
no interest 927,910
------------------
Total due to related parties $ 2,606,647
==================
eCONNECT
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
4. RELATED PARTY TRANSACTIONS (continued)
Satisfaction of due to related parties - During February 2002, the Company
issued 153,846 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 June 30, 2002, the Company borrowed
an additional $187,508 from Alliance which has been included as part of due
to related parties totaling $2,606,674.
Richard Epstein stock warrants - During February 2002, Richard Epstein
exercised stock warrants to purchase 680,000 shares of the Company's common
stock for $68,000.
During May 2002, Richard Epstein was granted 60,599,106 (post reverse stock
split) warrants to purchase shares of the Company's common stock for 50% of
the closing bid price and expire one year from grant date for a finance
fee. The Company estimates the fair value of Mr. Epstein's stock warrants
granted by using the Black-Scholes option pricing-model with the following
weighted average assumptions; no dividend yield; expected volatility of
318%; risk free interest rates of 1.79%; and expected lives of 6 months.
Accordingly, the Company recorded interest expenses under SFAS No. 123
relating to non-statutory stock warrants that became exercisable upon grant
for $43,203,730 as of June 30, 2002.
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 150,000 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 150,000
shares due to delays in issuances of its common stock to Alliance.
5. STOCK OPTIONS
Stock options granted to consultants - During January 2002, the Company
granted stock options to purchase 210,000 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 210,000 options were
exercised for $215,250.
6. 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. As of June 30, 2002, the
Company owns approximately 70% of eGS, Inc. The remaining balance of 30%
had been distributed pursuant to a stock dividend to all of its
stockholders of record as of April 3, 2002. The stockholders received one
common share of eGS, Inc. for every 100 pre-reverse split share held of the
Company's common stock as of April 3, 2002. The Company intends to maintain
a majority ownership of 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 June 30, 2002, eGS, Inc. has no assets or liabilities.
eCONNECT
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
7. Going Concern
The Company incurred a net loss of approximately $51,690,000 for the six
months ended June 30, 2002. The Company's current liabilities exceed its
current assets by approximately $14,217,000 as of June 30, 2002. These
factors create substantial doubt 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.
8. SUBSEQUENT EVENTS
Pacific Nakon - During July 2002, the Company received a letter of intent
from Pacific Nakon International, Inc. ("PNI") whereby PNI, in conjunction
with Valet, Inc. and Electronic Valet Systems, Inc., proposed the
following:
(i) PNI would provide ownership of all equity interests in Valet, Inc. and
Electronic Valet Systems, Inc. for the purpose of implementing this
business transaction in exchange for the Company providing and
installing 10,000 eCashPads
(ii) The parties will create a new corporation to serve as the repository
of the equity interest noted in the letter of intent with the
ownership being negotiated in not less than 20 banking days
(iii) PNI will issue to the Company $20,000,000 in asset backed corporate
debentures for the purpose of enhancing the balance sheet of eConnect.
Such bonds will have a term of seven years and shall earn interest at
8.5% per year to be payable in arrears
(iv) All parties intend to pay a loan with an undisclosed balance and
provide two bonds for totaling $7,000,000 to acquire all assets owned
by F.F.S., LLC and their membership units
(v) The Company will issue 2,000,000 share of common stock to the
participating parties
This letter of intent is subject to a formalized contract that has not been
prepared to date.
Electronic Valet Systems, Inc. - During July 2002, the Company signed a
letter of intent to establish a strategic agreement to develop a money
transfer system between the United States and Mexico with Electronic Valet
Systems, Inc. Upon signing the letter of intent, the Company agreed to pay
$150,000 and issue 10,000,000 shares of the Company's common stock to
Abelardo Castillo, Sr. of Electronic Valet Systems, Inc. On August 15, 2002
the Company is required pay an additional $3,000,000 to Electronic Valet
Systems, Inc. with a final payment of $2,500,000 due 60 days from date of
the strategic agreement. In the event of any breach of the agreement by the
Company, the entire agreement will be cancelled without notice and all
consideration will not be reimbursed to the Company. Through the date of
this report, no consideration for the letter of intent has been delivered
by the Company.
Transaction Systems, LLC - During July 2002, the Company signed a letter of
intent with Transaction Systems, LLC, whereby the Company desires to
acquire all membership units and an exclusive license for Merlin 2, ePos2,
and Gaming Software in consideration of registered shares valued at
$1,000,000 determined at the date of closing. Merlin2 is a web based
front-end system for the loading and sale of prepaid cards. ePos2 is a
point-of-sale software that allows prepaid cards to be sold and loaded in
real time via Merlin2 interface. Gaming Software supports Internet gaming
from the front-end to the back-end which allows casinos to create private
label accounts and can interface with Merlin2 and allow customers to move
their winnings to a debit card. Through the date of this report, no
consideration for the letter of intent has been delivered by the Company.
eCONNECT
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
8. SUBSEQUENT EVENTS (continued)
eConnect Financial - During July 2002, the Company entered into an
agreement with Alan J. Conner & Associates to jointly form eConnect
Financial to operate an Internet Bank under a joint venture with InterState
Net Bank. eConnect Financial will issue sub prime credit cards, credit
insurance and open bank accounts through eCashPad users with Allan J.
Conner acting as the president. The Company shall fund $1,500,000 by August
2, 2002 with $500,000 to be allocated towards the purchase of capital stock
in Interstate Net Bank and $1,000,000 allocated towards operations of the
venture. Additionally, the Company will grant 10,000,000 warrants to
purchase shares of the Company's common stock for 25% below the close bid
price on the 15th day of each month for 12 months from the effective date
of the agreement. The venture will be divided into two divisions: Division
I consisting of the sub prime credit card division with 70% owned by Allan
J. Conner & Associates, 20% owned by the Company and 10% owned by PNI;
Division II consisting of the eCashPad universal usage with 70% owned by
the Company, 20% owned by Allan J. Conner & Associates and 10% owned by
PNI. The Company did not meet the funding requirements pursuant to the
agreement, therefore the agreement has been cancelled and no additional
commitments by Alan J. Conner & Associates are required.
Halted trading of stock - On July 25, 2002, the SEC suspended trading of
the Company's common stock in connection with an investigation of the
Company's accuracy of several claims, including the claimed value of the
bonds PNI invested into the Company, the stated projected opening date of
eConnect Financial, and the value of a purchase order from another company.
The Company's common stock resumed trading on August 8, 2002; however, from
that date to the date of this report, the Company's common stock has been
trading on the National Quotation Bureau's Pink Sheets, since brokerage
firms who make a market in the Company's common stock on the
Over-The-Counter Bulletin Board ("OTCBB") are not willing to do so at this
time.
Allegations of violation of securities law and consent decree of 2000 - On
August 7, 2002, Thomas S. Hughes, Chief Executive Officer and Director of
the Company, was served with a complaint by federal authorities alleging i)
contempt of court pursuant to a permanent injunction issued on April 7,
2000 by issuing and/or approving issuance of false and misleading press
releases and failing to disclose material facts in connection with the
issuance of press releases and (ii) securities fraud in connection with the
purchase and sale of the Company's common stock. Remedies sought in these
proceedings include criminal and civil penalties and a bar from service as
an officer or director of a publicly-traded company. Although the Company
believes the charges are unwarranted, and intends to vigorously defend
against them, there can be no assurance that Mr. Hughes will be able to
continue to serve as its Chief Executive Officer in the event that the
Securities and Exchange Commission and Department of Justice receive the
remedies they seek. The loss of Mr. Hughes could have a material adverse
impact on the Company's business and financial condition.
3
ITEM 2. PLAN OF OPERATION
Twelve Month Plan of Operation.
Currently, the Company has completed an updated version 2.0 of the Bank Eyes
Only System,
which allows merchants to receive transactions from consumers using the
eCashPad. These transactions are initially received by the "Bank Eyes Only"
System and then routed to certified credit card gateway processors
With the updated 2.0 Bank Eyes Only version, eCashPad users can pay directly at
the web merchant site without a shopping cart being required and additionally,
the Version 2 Platform can now support eCashCard cash payments.
The Company's web site is: www.econnectholdings.com. To date over 7,000 plus
eCashPads have been distributed into the United States marketplace with
scheduled shipments of 9,000 additional eCashPad now in process.
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
addresses Internet consumers' concerns regarding personal and financial
information security. The company has published the "Bank Eyes Only" Web
merchant install download documentation.
The marketing strategies for the Company is to acquire merchants through
internal profession sales force, external distributors, and managed resellers;
and acquire consumers through direct distribution, retail, and managed
resellers.
The Company is also working on expanding the usage of the eCashPad to effect
payments to any web merchant with a same as cash eCashCard payment. Consumers
will use their value added private labeled eCashPad to effect cash payments with
their eCashPad at the web merchant's page.
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.
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 has
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.
The Company is also diligently working on the usage of the eCashPad to effect
PIN on line debit with either a swiped ATM card or debit card. This is known as
a POS transaction and will enable immediate cash payments to the web merchant in
the same way a cash payment is made at the supermarket with a POS transaction.
The Company reasonably expects to see PIN debit begin this year but can not
guarantee such POS Internet payments to begin.
Capital Resources
The company expects to continue to generate enough cash for its operations and
business plan over the next twelve months. 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.
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.
"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.
4
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 occurred on May 15, 2002.
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.
5
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."
6
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On August 7, 2002, the Securities and Exchange Commission filed a civil
complaint against eConnect, Thomas D. Hughes, Richard Epstein and Alliance
Equities, alleging that false press releases were made, and seeking injunctive
relief and disgorgement. The respondents are vigorously contesting the
allegations.
Halted trading of stock - On July 25, 2002, the SEC suspended trading of the
- -----------------------
Company's common stock in connection with an investigation of the Company's
accuracy of several claims, including the claimed value of the bonds PNI
invested into the Company, the stated projected opening date of eConnect
Financial, and the value of a purchase order from another company. The Company's
common stock resumed trading on August 8, 2002; however, from that date to the
date of this report, the Company's common stock has been trading on the National
Quotation Bureau's Pink Sheets, since relisting procedures for the
Over-The-Counter Bulletin Board ("OTCBB") have not yet been completed.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
Sales of Unregistered Securities.
Sales of unregistered securities occurring on or before March 31, 2002,
have been previously reported.
Shares
-------------------------------------
Issuance No. of Shares Total
Date Name Tradeability PRT No. Type Issued Consideration
- ---------------------------------------------------------------------------------------------------------------------------
4/1/2002 Perro Corp 144 Restricted Loan repayment 6,000,000 113,238
4/3/2002 Matt Katz Free Trading Consulting 250,000 5,243
4/3/2002 John Shapiro Free Trading Consulting 200,000 4,194
4/3/2002 Don Yarter Free Trading Consulting 200,000 4,194
4/3/2002 Mike Sitrick 144 Restricted Loan repayment 6,250,000 117,956
4/24/2002 Terry Roslington 144 Restricted Late fees 1,549,019 28,789
5/3/2002 Richard Epstein Free Trading Loan repayment 7,500,000 37,500
5/7/2002 William Haseltine 144 Restricted Consulting 600,000 9,234
5/7/2002 Mark Ninci Free Trading Loan repayment 800,000 13,680
5/7/2002 David Ninci Free Trading Consulting 150,000 2,565
5/7/2002 ET&T 144 Restricted Loan repayment 2,000,000 30,780
5/7/2002 Jackie Robinson 144 Restricted Legal Settlement 3,500,000 53,865
5/7/2002 Chris Jensen 144 Restricted Consulting 500,000 7,695
5/7/2002 Don Yarter 144 Restricted Consulting 500,000 7,695
5/20/2002 Shelly Weiser 144 Restricted Consulting 100,000 1,277
5/20/2002 Alliance Equities Free Trading Loan repayment 29,946,363 149,732
5/20/2002 Richard Epstein Free Trading Loan repayment 19,964,242 99,821
5/21/2002 Jackie Robinson Free Trading Legal Settlement 1,000,000 13,870
5/21/2002 Chris Jensen Free Trading Consulting 500,000 6,935
5/21/2002 Don Yarter Free Trading Consulting 500,000 6,935
5/21/2002 Chris Jensen 144 Restricted Consulting 500,000 6,242
5/21/2002 Don Yarter 144 Restricted Consulting 500,000 6,242
5/30/2002 Marylou Garcia Free Trading Consulting 600,000 7,164
5/30/2002 Raymond Russell Free Trading Consulting 1,000,000 11,940
5/30/2002 Jason Chester Free Trading Loan repayment 11,000,000 55,000
5/30/2002 Peter Bianchi Free Trading Consulting 20,000,000 238,800
6/11/2002 Joan Shapiro 144 Restricted Consulting 600,000 5,400
6/11/2002 Julie Saxton 144 Restricted Consulting 500,000 4,500
6/11/2002 Quinn Brady Free Trading Loan repayment 500,000 5,000
6/14/2002 Julie Saxton 144 Restricted Legal Settlement 5,000,000 45,000
6/14/2002 Julie Saxton 144 Restricted Legal Settlement 5,000,000 45,000
6/14/2002 Julie Saxton 144 Restricted Legal Settlement 5,000,000 45,000
6/14/2002 Frank Macac Free Trading Consulting 600,000 6,000
6/14/2002 Matthew Crawford Free Trading Consulting 600,000 6,000
6/17/2002 Richard Epstein Free Trading Loan repayment 9,965,111 49,826
6/18/2002 Anna Morris 144 Restricted Consulting 10,000 90
6/18/2002 John Morris Jr. 144 Restricted Consulting 10,000 90
6/18/2002 Goldstake Enterprises 144 Restricted Legal Settlement 5,000,000 45,000
6/18/2002 Goldstake Enterprises 144 Restricted Legal Settlement 5,000,000 45,000
6/18/2002 Goldstake Enterprises 144 Restricted Legal Settlement 5,000,000 45,000
6/18/2002 Alberto Barrera Free Trading Consulting 1,000,000 10,000
6/18/2002 Rick Wilson 144 Restricted Consulting 300,000 2,700
------------------------------------
159,694,735 1,400,190
------------------------------------
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).
7
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION.
Lawrence B. Donoghue submitted his resignation as director on August 7, 2002.
Pacific Nakon - During July 2002, the Company received a letter of intent from
- -------------
Pacific Nakon International, Inc. ("PNI") whereby PNI, in conjunction with
Valet, Inc. and Electronic Valet Systems, Inc., proposed the following:
(i) PNI would provide ownership of all equity interests in Valet, Inc. and
Electronic Valet Systems, Inc. for the purpose of implementing this
business transaction in exchange for the Company providing and installing
10,000 eCashPads
(ii) The parties will create a new corporation to serve as the repository of
the equity interest noted in the letter of intent with the ownership being
negotiated in not less than 20 banking days
(iii) PNI will issue to the Company $20,000,000 in asset backed corporate
debentures for the purpose of enhancing the balance sheet of eConnect.
Such bonds will have a term of seven years and shall earn interest at 8.5%
per year to be payable in arrears
(iv) All parties intend to pay a loan with an undisclosed balance and provide
two bonds for totaling $7,000,000 to acquire all assets owned by F.F.S.,
LLC and their membership units
(v) The Company will issue 2,000,000 share of common stock to the
participating parties
This letter of intent is subject to a formalized contract that has not been
prepared to date.
Electronic Valet Systems, Inc. - During July 2002, the Company signed a letter
- ------------------------------
of intent to establish a strategic agreement to develop a money transfer system
between the United States and Mexico with Electronic Valet Systems, Inc. Upon
signing the letter of intent, the Company agreed to pay $150,000 and issue
10,000,000 shares of the Company's common stock to Abelardo Castillo, Sr. of
Electronic Valet Systems, Inc. On August 15, 2002 the Company is required pay an
additional $3,000,000 to Electronic Valet Systems, Inc. with a final payment of
$2,500,000 due 60 days from date of the strategic agreement. In the event of any
breach of the agreement by the Company, the entire agreement will be cancelled
without notice and all consideration will not be reimbursed to the Company.
Through the date of this report, no consideration for the letter of intent has
been delivered by the Company.
Transaction Systems, LLC - During July 2002, the Company signed a letter of
- ------------------------
intent with Transaction Systems, LLC, whereby the Company desires to acquire all
membership units and an exclusive license for Merlin 2, ePos2, and Gaming
Software in consideration of registered shares valued at $1,000,000 determined
at the date of closing. Merlin2 is a web based front-end system for the loading
and sale of prepaid cards. ePos2 is a point-of-sale software that allows prepaid
cards to be sold and loaded in real time via Merlin2 interface. Gaming Software
supports Internet gaming from the front-end to the back-end which allows casinos
to create private label accounts and can interface with Merlin2 and allow
customers to move their winnings $$/BREAK/$$END to a debit card. Through the
date of this report, no consideration for the letter of intent has been
delivered by the Company.
eConnect Financial - During July 2002, the Company entered into an agreement
- ------------------
with Alan J. Conner & Associates to jointly form eConnect Financial to operate
an Internet Bank under a joint venture with InterState Net Bank. eConnect
Financial will issue sub prime credit cards, credit insurance and open bank
accounts through eCashPad users with Allan J. Conner acting as the president.
The Company shall fund $1,500,000 by August 2, 2002 with $500,000 to be
allocated towards the purchase of capital stock in Interstate Net Bank and
$1,000,000 allocated towards operations of the venture. Additionally, the
Company will grant 10,000,000 warrants to purchase shares of the Company's
common stock for 25% below the close bid price on the 15th day of each month for
12 months from the effective date of the agreement. The venture will be divided
into two divisions: Division I consisting of the sub prime credit card division
with 70% owned by Allan J. Conner & Associates, 20% owned by the Company and 10%
owned by PNI; Division II consisting of the eCashPad universal usage with 70%
owned by the Company, 20% owned by Allan J. Conner & Associates and 10% owned by
PNI. The Company did not meet the funding requirements pursuant to the
agreement, therefore the agreement has been cancelled and no additional
commitments by Alan J. Conner & Associates are required.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
Exhibits.
8
Exhibits included or incorporated by reference herein are set forth in
the attached Exhibit Index.
Reports on Form 8-K.
None
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 20, 2002 By: /s/ Thomas S. Hughes
------------------------------------
Thomas S. Hughes, Chairman, CEO
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Thomas S. Hughes, certify, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the
Quarterly Report of eConnect, Inc. on Form 10-QSB for the quarterly period ended
June 30, 2002, fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934 and that information contained in such
Quarterly Report fairly presents in all material respects the financial
condition and results of operations of eConnect, Inc.
By: /s/ Thomas S. Hughes
----------------------------
Name: Thomas S. Hughes
Title: Chief Executive Officer
eConnect currently has no chief financial officer.
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).
9
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).