eConnect Inc. (fka ECNT)

[lucky, mydog]

02/12 16:37
Econnect's EcashPads Haven't Connected With Consumers (Update1)
By David Evans


Long Beach, California, Feb. 12 (Bloomberg) -- Econnect Inc. hopes its mouse-like device, called an eCashPad, will change the way products are purchased over the Internet.

So far, though, Econnect hasn't connected with customers very well, despite spending $4.2 million to produce 100,000 of the devices and millions more to promote them. Total sales since they went on the market three months ago: 20.

``We get about two orders a day,'' said Hughes in an interview on Friday.

The Long Beach, California-based company, with a market value of $55 million and 26,000 shareholders, has bet its future on the eCashPad, which sells for $59.95 and apparently affords greater security for PC users when buying on the Web.

Many people distrust sending their credit card numbers over the Web for security reasons. Econnect says its product solves that. Instead of entering an account number on a computer screen, a customer swipes a credit card through the eCashPad, which is linked to Econnect. The company charges the customer's credit card and pays the merchant, which pays Econnect $1 for each transaction. Econnect is betting consumers will be more comfortable giving their credit card information to Econnect than to merchants.

``The consumer has to accept the fact that they trust us with their credit card data,'' said Hughes.

Controversy

The controversy surrounding Econnect might be too much for some customers. Econnect faces lawsuits by investors charging securities fraud and the company last year settled allegations of securities fraud lodged by the Securities and Exchange Commission.

In November, Chief Executive Tom Hughes predicted 1 million eCashPads would be in use by the third quarter of 2001. He began advertising heavily on radio stations and on Nov. 4 agreed to pay stock then worth more than $2 million to Los Angeles crisis publicist Michael Sitrick to promote the product.

But last week, he revised his sales estimate down to a range of 50,000 to 100,000. Hughes said the company will soon air infomercials to promote the devices. They've been advertised on 250 radio stations for the past month, he said.

Last Wednesday, the first product became available for purchase over the Internet by consumers with eCashPads: $4 t-shirts sold at Econnect's online store at http://epay.econnecthholdings.com. Hughes said 100 merchants have signed up to participate, but aren't yet hooked up to its payment system.

`A Nice Paperweight'

``Until we get (enough) merchants signed up, the eCashPad is going to be a nice paperweight,'' said Hughes in a November interview at the Comdex trade show in Las Vegas, when the eCashPads first went on sale.

Last March, the SEC alleged that Econnect issued ``false and misleading press releases'' that it had business deals with Palm Inc. and a small Florida broker. The SEC charged that the releases helped send EConnect shares rise from $1.39 on Feb. 28 to a high of $21.88 on March 9. The shares recently traded at 30 cents.

The company and Hughes settled the SEC complaint, without admitting any wrongdoing, by agreeing not to commit fraud in the future.

In the third quarter, with no revenue from eCashPad, all Econnect's revenue, $6,278, came from Top Sports, a chain of a dozen betting parlors it owns in the Dominican Republic.

Econnect lost $36.6 million in the first nine months of last year. The company, which had a negative net worth of $5 million on Sept. 30, has 230 million shares outstanding.

Liabilities of $3 million exceeded assets of $1.4 million for negative working capital of $1.6 million on Sept. 30.

Econnect shares have fluctuated wildly over the past year, attracting a highly vocal following of small investors, who vastly outnumber the company's 12 full-time employees. More than 280,000 messages about the company have been posted on the Internet during the last 12 months.




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