SALT LAKE CITY-- March 10, Pluvia Securities Research Initiates Coverage of eConnect, (OTC Bulletin Board: ECNC), at the current price of $14.50 with a STRONG SELL Recommendation and a target price of under $1.00
Our Strong Sell Recommendation and price target are based on:
1. eConnect's bleak financial condition;
2. The significant number of new shares issued by eConnect that when sold may negatively impact the stock price;
3. A series of false, misleading press releases issued by eConnect regarding their business prospects and relationships;
5. eConnect's failure to file reports with the SEC disclosing significant events;
6. eConnect's enormous valuation compared to industry market leaders;
Bleak Financial Condition and Increase in New Shares Outstanding
eConnect's 10Q filing for the company?s September 30, 1999 quarter shows current assets of $44,664, current liabilities of $1,062,446. The filing also reports only $40,000 of revenue for the entire quarter.
eConnect's 1999 2nd quarter 10Q filing reports 30.9 million issued and outstanding shares. The 1999 3rd quarter 10Q filing reports 77.9 million shares issued and outstanding. According to the company's stock transfer agent as of yesterday, approximately 158 million shares are now issued and outstanding. We believe the significant increase in shares outstanding could negatively impact the stock price if they are sold into the market.
False, Misleading Press Releases and Failure to File Disclosures
eConnect's Information Officer stated yesterday eConnect has two sources of revenue, a "Powerclick" website and a gambling operation.
EConnect's Powerclick website consists primarily of an affiliate link to Freeshop.com, which is a direct marketing company. According to Freeshop.com, anyone can join the affiliate program and earn $0.05 per "click-thru" web traffic driven to the Freeshop.com website. Freeshop's affiliate program consists of over 50,000 affiliates which operate websites similar to eConnect's Powerclick website.
In a press release issued on February 21, 2000 eConnect states, "eConnect is proud to announce that its Powerclick subsidiary has reached the remarkable milestone of more than 200,000 unique visitors daily to its network of sites." It continues, "Based upon the 200,000 daily unique visitor number that Powerclick is currently generating at $0.05 per unique click, Powerclick will produce in excess of $10,000 a day, $300,000 per month or nearly $4,000,000 a year in revenues."
Contrary to eConnect's claims, Freeshop CFO, John Wade stated yesterday, "none of our affiliates have generated over $1,000 per day" and "the top ten affiliates each generate about $100 per day."
eConnect reported on November 16, 1999 that it had purchased the online gambling
site "777WINS.com" for 7 million shares of eConnect stock. eConnect reported that this gambling site produced revenue of $100,000 per month and 9 month income of $338,000 during 1999, making it eConnect's largest income and revenue producing operation. However, eConnect's information officer stated yesterday the 777WINS.com operations had been shut down several months earlier and the shutdown had never been disclosed in a press release or in an 8K filing as required by the SEC. This would appear to be a direct violation of a consent decree eConnect signed due to prior failures to disclose information as required by SEC regulations.
On November 23rd, 1999 eConnect announced in a press release it had "signed a letter of Intent to acquire 50 percent of the Dominican Republic business of Top Sports SA, which currently owns and operates 12 Dominican land based licensed sports books which are generating $1,700,000 in yearly revenue." Yesterday, eConnect's Information Officer stated eConnect did not own any part of Top Sports SA instead, he said eConnect had an "alliance" with Top Sports SA in exchange for an unknown number of ECONNECT shares. This is direct contradiction to eConnect's Nov 23rd press release.
eConnect has issued several press releases promoting the revenue production of Top Sports, suggesting the revenue will in some way benefit eConnect. Three months after first announcing the Top Sports SA deal, eConnect has failed to file an 8K with the SEC disclosing the nature of eConnect's relationship with Top Sports SA. Currently investors do not know how Top Sports SA revenue will affect eConnect - if at all, or how many eConnect shares eConnect paid Top Sports SA. This would again appear to be a violation of SEC rules concerning disclosure of significant events, and a direct violation of eConnect's consentdecree with the SEC.
In a press release dated March 7, 2000 eConnect describes the following cash pay system they claim to have developed, "With the final successful integration of all eConnect systems, eConnect will have the technology and resources to connect the entire financial world with the most efficient and secure technology in existence today. With its one-swipe, real-time pay/deposit systems, eConnect has now clearly established a leading position in the projected Trillion dollar industry of global Internet and retail cash payments." Contrary to eConnect's claims, other very well financed companies including Cybersource (CYBS) and Cybercash (CYCH) already perform very similar services for internet consumers.
According to eConnect's Information Officer, eConnect developed their cash pay system in an alliance with SafeTPay. Yesterday the owners of SafeTPay stated they developed and applied for patents covering the cash pay system eConnect proposed to use during their alliance. They also stated SafeTpay terminated all relationships with eConnect in early January 2000, after eConnect's contractual default.
Approximately two months after SafeTpay terminated the relationship, eConnect continues to promote their use of SafeTpay's system. In a February 29, 2000 SEC filing, eConnect referenced "the Company's eSecure SafeTpay system which allows people to make purchases and payments on-line. By simply swiping a major credit card through any of the Company's eSecure hardware products, the encryption processing systems provide the ultimate in current anti-piracy technology."
In a press release dated February 28, 2000 eConnect, announced they had "entered into a strategic alliance with Empire Financial Group Inc. to offer Internet stock brokerage firms and their clients the Instant Cash Trading Account (TM) system that utilizes an ATM card with PIN." However, Donald Wojnowski, Vice President of New Business Development, at Empire Financial Group, stated the following. "We have no comment regarding eConnect other than we have not entered into a strategic alliance with eConnect. The only agreement we have is a confidentiality agreement to explore business possibilities. We did not approve the press release issued by eConnect."
Unexplainable Market Valuation
Using yesterdays closing stock price, eConnect's market capitalization was $2.3 billion and according to eConnect's consultant Robert Masters, eConnect has no commercially working hardware or software and no customers. eConnect's competitor Cybersource, (CYBS), has a $1.3 billion market capitalization and over 1,200 customers including Amazon.com, Beyond.com, BUY.COM, Casio, Compaq Computer, Mercata.com, MotherNature.com, Nike.com, Priceline Rx.com, Remedy and Shopping.com. Another eConnect competitor Cybercash, (CYCH), has a market capitalization of $250 million, processed more than eight million transactions in February and has over 20,000 merchant customers include FatBrain.com, PalmPilot.com Reel.com, SmarterKids.com, Toysrus.com, and Vitamins.com.
For these reasons, Pluvia Securities Research issues a Strong Sell Recommendation on eConnect with a 6 month price target of under $1.00. We believe the significant discrepancy between our target price and the stocks current price represents an almost 100% downside risk to current holders of the stock. Pluvia Securities Research will maintain research coverage of eConnect and update future findings.
Pluvia Securities Research, their agents, associates, and or employees have investment positions consistent with the above-stated investment opinion.
CONTACT:
Pluvia Securities Research
Steve Pluvia, 801/554-6898
e-mail pluvia2@aol.com |
