ISSUE NUMBER THREE FROM THE 10Q:
- Are the 2,755,000 restricted shares held in escrow for E.T. & T. going to be cancelled at the end of the month?
- Will the debenture be redeemed for Free-Trading Stock?
- Was the licensing fee and restitution paid for in Free-Trading Stock?
4. Related Party Transactions.
The Company has entered into various agreements with Electronic Transactions and Technologies (“ET&T”), a corporation 70% owned by Mr. Hughes. The following are the transactions for the six months ended June 30, 1999 between the related parties (ET&T and Mr. Hughes) and e Connect:
Charges
Cash disbursed to the related parties (net of a $50,000 salary): $ 189,411
144 Restricted Stock issued to Mr. Hughes: 4,000,000 shares
144 Resticted Stock issued to ET&T: 5,400,000 shares
9,400,000 shares
Value at par value of $.001 per share: 9,400
Assumption of ET&T liability: 706,810
Total Charges 905,621
Credits
License fee (Note 6B): 2,000,000
Restitution (Note 6C): 125,000
Total Credits: 2,125,000
Due to ET&T and Mr. Hughes: $ 1,219,379
It is planned to reimburse ET&T in company stock.
5. Acquisition.
During the six months ended June 30, 1999, the Company acquired 100% of Rogel Technologies, a corporation which will assist the Company in developing its product line. The acquisition was accounted for as follows:
2,500,000 shares of restricted stock: $ 687,500
2,500,000 shares of free trading stock
to be delivered post June 30, 1999: 1,375,000
$2,062,500
The stock was valued at $.55 per share less a 50% discount for restricted stock.
6. Commitments and Contingencies.
A. Debentures Payable
The Company is contesting the payment of $500,000 principal due on a certain debenture, as claimed by a Canadian firm. The companies respective counsels are currently negotiating a settlement of this matter.
B. Licensing Agreement
ET&T has licensed the global intellectual rights of four products to e Connect. The products are: "The Paymaster," "The Slick," "The Pocket Pay" and " The TV Pin Pad Remote." Each product is licensed at $2,000,000 and is due if and when the Company perfects the product. To date, only "The PayMaster" has been perfected.
C. Restitution
In connection with the acquisition of the wholly-owned subsidiary, Rogel Technologies, Mr. Thomas Hughes gave up 250,000 shares of his own stock valued at $.50 per share. In the event Mr. Hughes receives the stock back, the restitution loss will be canceled.
D. Stock Options
The Company does not have a formal stock plan, however, certain consultants have, as part of their agreements, the right to buy stock at a stipulated price per share.
E. Agreement to License Assets
The Company issued 2,900,000 shares of restricted common stock to ET&T in exchange for licensing home ATM card and SMART card wagering technology developed by ET&T. Of this amount, 2,755,000 shares were placed in escrow and were subject to cancellation on February 10, 1998, in the event the bid price of the common stock of the Company was not at least $3.00 per share for any twenty consecutive day period as reported on the NASD's Electronic Bulletin Board from the date of the agreement through February 10, 1998.
As of the date of these financial statements, the terms of the Licensing Agreement have not been met by the Company. However, the Company has entered into amendment(s) of the original agreement that provide for an extension of the cancellation deadline from February 10, 1998, to September 1, 1999, subject to certain conditions specified in the agreement. As of the date these financial statements, none of the conditions have been met. All conditions set forth in the original agreement need to be met on or before September 1, 1999.
The License Agreement also provides that in the event that the bid price for the common stock of the Company is more than $3.00 per share for any twenty consecutive day period, the ET&T shall have the option to purchase up to 13,822,000 additional shares of the Company common stock at an exercise price of $.30 per share.
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