-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, I3oHKKvEQvX8iBEL2XwpJOmc3I38c6C+6z9CGGWlDH81mvg5pziMXQsLGKS6qA1f 2DJLqydyPf4huUt5cYdmyQ== 0001000459-03-000002.txt : 20030930 0001000459-03-000002.hdr.sgml : 20030930 20030930150942 ACCESSION NUMBER: 0001000459-03-000002 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20030531 FILED AS OF DATE: 20030930 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ECOM ECOM COM INC CENTRAL INDEX KEY: 0001000459 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 650538051 STATE OF INCORPORATION: FL FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-23617 FILM NUMBER: 03917420 BUSINESS ADDRESS: STREET 1: 2700 PGA BLVD STE 103 CITY: PALM BEACH GARDENS STATE: FL ZIP: 33410 BUSINESS PHONE: 5616224395 FORMER COMPANY: FORMER CONFORMED NAME: US AMATEUR SPORTS INC DATE OF NAME CHANGE: 19950912 10KSB 1 ecec0503.txt ECEC10KSB U. S. SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Form 10-KSB ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended May 31, 2003 Commission File Number 33-96638-A eCom eCom.com, Inc. - ------------------------------------------------------------------------ (Name of small business issuer in its charter) Florida 65-0538051 - ------------------------------------- ---------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2700 PGA Boulevard, Suite 103 Palm Beach Gardens, Florida 33410 (Address of principal executive offices) (561) 622-4395 (Issuer's telephone number) Securities registered under Section 12(b) of the Exchange Act: None Securities registered under Section 12(g) of the Exchange Act: None Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ ] State issuer's revenue for its most recent fiscal year. [ $148,672 ] State the aggregate market value of the voting and non-voting common equity held by nonaffiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of a specified date within the past 60 days. [ $728,000 ] State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date. [ As of May 31, 2003, the issuer had 36,393,112 shares of common stock, $.0001 Par Value, outstanding.] Transitional Small Business Disclosure format: Yes [ ] No [ X ] TABLE OF CONTENTS PART I Page Item 1. Business of the Company 1 Item 2. Properties 6 Item 3. Legal Proceedings 7 Item 4. Submission of Matters to a Vote of Security Holders 8 PART II Item 5. Market for the Registrant's Common Equity and Related Shareholder Matters 9 Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 7. Financial Statements 13 Item 8. Disagreements on Accounting and Financial Disclosures 33 PART III Item 9. Directors and Executive Officers of the Registrant 33 Item 10. Executive Compensation 35 Item 11. Security Ownership of Certain Beneficial Owners and Management 37 Item 12. Certain Relationships and Related Transactions 37 PART IV Item 13. Controls and Procedures 43 Item 14. Exhibits, Financial Statements and Reports on Form 8-K 45 Additional Information* Signatures 48 Certification 50 * This document incorporates into a single document the requirements of the Securities and Exchange Commission for the Annual Report to Stockholders and the Form 10-KSB. Special Note Regarding Forward-Looking Statements Certain statements in this report and elsewhere (such as in other filings by the Company with the Securities and Exchange Commission ("SEC"), press releases, presentations by the Company or its management and oral statements) may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," and "should," and variations of these words and similar expressions, are intended to identify these forward-looking statements. The Company's actual results could differ materially from those anticipated in these forward-looking statements. Factors that might cause or contribute to such differences include, among others, competitive pressures, the growth rate of the paint- ball industry and electronic commerce, constantly changing technology and market acceptance of the Company's products and services. The Company undertakes no obligation to publicly release the result of any revisions to these forward-looking statements, which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. PART I ITEM 1. BUSINESS OF THE COMPANY eCom eCom.Com, Inc. ("eCom") and its direct and indirect wholly-owned subsidiaries, USA SportsNet Company ("USASN") (formerly US Amateur Sports Company ("USASC")), USA Performance Products, Inc. ("USAPP") and MyZipSoft, Inc., combined, are usually referred to as "the Company", "it" or "eCom". The Company's main office is located at 2700 PGA Boulevard, Suite 103, Palm Beach Gardens, Florida 33410, and the telephone number is (561) 622-4395. The Company was incorporated in the State of Florida on June 14, 1994. eCom recently changed its direction to focus on three of its current business segments, USA SportsNet, Inc., USA Performance Products, Inc., and MyZipSoft, Inc. which was established on March 3, 2003. This plan was undertaken for the purposes of allowing the management and employees the opportunity to operate each segment independently. Also, to have the ability for each segment, to raise its own funding for growth and expansion. The business segments are described below. 1. USA SportsNet Company, Palm Beach Gardens, Florida Product Line: e-Commerce business through Internet auction, sale and swapping of sports memorabilia. Articles are both company owned as well as those listed by private parties. 2. USA Performance Products, Inc., Riviera Beach, Florida Product Line: Manufactures and distribution of the Viper M1 paintball gun line. An M16 look alike gun which fires in all weather and is made entirely in the USA. 1 3. MyZipSoft, Inc., Palm Beach Gardens, Florida Product Line: Development and distribution of software. Its first product is a high-compression software called MyPhotoZip (TM). The Company considers this product "the ultimate image compression tool", that enables compression of still images up to 2000 to 1 without loss of quality. This has increased from 1500 to 1. The Company is also developing other cutting edge applications including video compression which could be introduced later this year. The Company has entered into a marketing agreement with Digital River for its on-line sales of MyPhotoZip (tm). It is too early in this arrangement to measure results. Previously, the Company developed an e-commerce infrastructure. eCom provided an affordable, user-friendly technological platform and professional resources to facilitate web business development. It also operated an on-line business as a test model, using Company developed e-commerce concepts to sell paintball products. However, the current business model was revised with the intention to eventually separate the e-commerce business segment, which is described above, along with the previously operated programs, for the purpose of allowing each of the three business segments the opportunity to grow on its own. The company realizes that it presently does not have the proper resources to develop all three segments simultaneously and is looking towards a partnership for each business segment so that it may obtain the necessary outside resources. The separation was also a result of past experiences which indicated that potential business partners desire to be involved with only one of the business segments. The Company's new mission is to make all business segments grow, expand and become profitable through affiliations or mergers with other successful companies and ultimately increase shareholder value. There are no prospects to report at this time. However, if and when this is accomplished, it is the company's intention to use a pro-rata basis to distribute any new shares to current eCom shareholders. Historical Information eCom is the parent of USA SportsNet Company(USASN) (formerly US Amateur Sports Company), which is the parent of USA Performance Products, Inc. USA SportsNet Company owns the rights to: (1) the All American Bowl, a high school football all-star game, last played in 1997, when it was broadcast to over 40 million households; (2) the ProCard/ComCard, a prepaid phone card concept; and (3) USA SuperHub (auction, barter and classified services). In addition, USASN owned the rights to use of the toll-free telephone number, 1-800-724-6822 (1-800- PAINTBALL) until it was sold as described below. USA Performance Products manufactures and distributes Viper M1 paintball guns and accessories. This has served as a test model for its e-commerce business concepts and has generated the majority of revenues to date. USAPP in addition to sports, derives a portion of its sales from use of the Viper M1 for police, military and homeland security training. The company is now looking to partner with a suitable company to spin-off USAPP and expand more into the homeland security field. USAPP was approved as a GSA vendor in early 2003 for its Viper M1 paintball line. 2 On January 21, 2000 the Company entered into a Stock Exchange Agreement with the shareholders of Star Dot Marketing, Inc. ("SDMI"), which provided for the transfer of all the outstanding common stock of SDMI to eCom eCom.com, Inc. in exchange for 675,000 shares of common stock. The transaction was closed on May 31, 2000. On May 11, 2001 rights to use of the toll-free telephone number, 1-800- PAINTBALL, and related website addresses were sold for a cash payment of $900,000. On May 31, 2001 the Company sold all of the stock of Star Dot Marketing, Inc. in return for assumption of debt of $208,000 owed to the original owners of SDMI. In August 2001 eCom entered into a joint venture agreement with PremierSoft, Inc. to form a new company called Zyndecom, Inc., to market the "Z Boxx," a software utility. This project has been halted for the time being. In September 2001, ECOM entered into a Value Added Reseller agreement with Impact Imaging, Inc. (III) of Columbia, MD. This contract, called for III to develop for ECOM the ability to write to the Application Program Interface (API)or provide a full Software Development Kit (SDK) for ECOM's use by December 31, 2001. This relationship was terminated in November 2002. On April 9, 2002 we announced that we had signed a new agreement for use of high power compression encoding technology developed by MeVis Technology of Germany. The first product released using the new technology is MyPhotoZip (tm). MyPhotoZip(tm) provides a better quality image than JPEG and other compression products now on the market. We are moving ahead as quickly as possible to develop and market an array of compression products using this new technology while it is still the state of the art. Software Development Kits (SDK's) are also available. On April 18, 2002 we announced that we had entered into a teaming agreement with Image Soft, Inc. of Brooksville, Florida under which the two companies will work together to market innovative compression technology. The agreement included a structure for revenue sharing between the two companies. eCom has exercised its right to terminate this agreement. The Company is in the process of renegotiating a teaming agreement that was entered into on June 18, 2002 with World Data Group LLC, of Boca Raton, Florida. The original agreement provided revenue sharing in the amount of 10% of all World Data Group's income derived from MeVis Technology integrations. In addition, any of the integrated products to be offered for commercial sale will be made available to eCom eCom to resell. Negotiations are on-going. On July 15, 2002 we announced the availability of MyPhotoZip(tm) for download from our new website, www.myphotozip.com. In addition, we provided details of the primary marketing strategy for all of our company's compression products which is based on an agreement signed with Plugin Technologies of the United Kingdom. Using Plugin's network of thousands of sales affiliates, eCom's product lines will be promoted globally to a variety of market segments. While broadening the target audience to international markets, this approach takes advantage of the Internet without incurring the heavy cost of traditional Internet-based advertising programs. While this program continues, the company will be renegotiating terms in the near future. 3 On December 12, 2002 we signed a contract to purchase the software rights to FotoCrazy from Interveloce.net. FotoCrazy is an on-line subscription based photo-album system, which will allow users to post and organize digital images on their own web pages. This product will be renamed MyAlbumZip but this project is halted at this time. February 2003, the company signed a Master Distributor Agreement with Artera Group, Inc., of Westport CT, a subsidiary of NCT Group, Inc. (OTCBB:NTCI). The agreement covers the distribution of Artera Turbo Web Accelerator for Internet access. The company will market the product as MyNetZip for a monthly subscription fee. MyNetZip will have the MyPhotoZip technology imbedded to provide DSL speed over dial-up internet connections. MyNetZip can be used with all Internet connections and especially Internet access which is normally enhanced to the DSL level of service. This project is also being renegotiated. The Company's reengineering dictated the need to partner or sell all of its business segments. With the sale of its 1-800-PAINTBALL business and the Star Dot Marketing subsidiary, the only significant revenue-generating product line left from its previous business model was the Viper M1 paintball marker. The Company believes that this product has the potential to command a significant share of the paintball gun market. The Company is seeking a partner to focus on its further development and expansion. The Company's operating results continue to reflect the temporary cessation of revenues caused by discontinuing these businesses. However, due to the recent agreements and alliances with some established and strong partners, the Company has regained its confidence that the Company will now prosper and show significant revenues and profits. We believe that by separating the three business segments provides the greatest opportunity for eCom to achieve profitability. As noted above, the Company intends to divest all other product lines. As a consequence, during fiscal year ending May 31, 2001, the Company sold Star Dot Marketing, Inc. and the rights to 1-800-PAINTBALL assets. The Company is actively seeking partners for its three business segments. Today every company faces limitations in their abilities to send and receive information in a timely and secure manner. Whether they work in a Local Area Network environment or on a dial-up ISP, the bandwidth availability is limited and expensive. These companies also are challenged with secure and affordable storage issues. Both bandwidth and storage are made more affordable with the use of MyPhotoZip (tm). The reduced size of the MyPhotoZip (tm) files allows for quicker transmission of data, secures it with its own encoding and is viewable and storable in the compressed state. This provides the customer with multiple benefits in one package. The Company's intention is to incorporate the MyPhotoZip(tm) software into applications tailored to meet the needs of specific markets. Alliances will be formed with corporate partners who offer sales and marketing expertise, thereby avoiding the expense of strengthening its in-house sales and marketing capabilities. eCom will focus on the development of new applications and the identification of potential new markets. 4 Competition There are various fractal and wavelet algorithms available in the market, i.e., Lizard Tech, Adobe, Pegasus, etc. The algorithms employed by MeVis combine wavelets and fractals using patented combinations at various stages of the compression/decompression process to produce one of the fastest image compressors available. The software underlying the product MyPhotoZip is being further developed to reduce images as much as 2000:1 with little discernable loss of quality. Principal competitive factors include brand recognition, pricing, financial strength, customer service, system reliability and reliability of delivery. All of these factors must be satisfactorily addressed in order for us to compete successfully. In order to respond to changes in the competitive environment, the Company may, from time to time, make pricing, service or marketing decisions or acquisitions that could harm its business. New technologies may increase the competitive pressures by enabling its competitors to offer a lower cost service or product. Whether the Company is able to compete successfully will depend on its ability to anticipate and respond in a timely and appropriate manner to these changes. Other eCom Properties With adoption of the plan to focus on the opportunities created by the separation of the three business segments, the Company decided to divest all of eCom's other product lines or roll them into USA SportsNet. The SuperHUB concept provides a portal to funnel traffic to the business within a marketplace that includes an on-line mall in addition to auction, barter and classified ad venues. Although the Company has stopped further development of these two concepts in favor of concentrating on MyPhotoZip (tm), the Company believes that the SuperHUB concept has viable long-term business opportunities. Through this program, the Company entered into contracts with eWebPEO.com ("EWEB") to assist EWEB with the design, development and creation of web pages, maintenance of Internet sites, web hosting services, e-commerce programming, Internet technology consulting, data management, Internet training, establishing a brand identity, implementation of an Internet marketing campaign and creation of a specialized on-line database. As compensation for these services, eCom received a total of $150,000 in cash which was recorded as revenue earned during the fiscal year ended May 31, 2001 plus 1.5 million shares of EWEB's $.0001 par value common stock. eWebPEO.com, Inc. subsequently went out of business and the investment was written down to zero. We do not intend to solicit any additional business of this nature. Viper M1 Paintball Marker A durable, mid-priced paintball gun with features of higher-priced models, the Viper M1 accounted for the first revenues recorded by the company. Following the sale of 1-800-PAINTBALL, manufacture and sale of the Viper is all that remains of its paintball business segment. The Viper M1 is still a strong competitor in the paintball market. The Company's current business plan calls for a partnership or spin-off for the further development of USA Performance Products, Inc. 5 USA SportsNet USA SportsNet is an Internet portal that was intended to enable amateur athletes and their high school and youth athletic organizations to access information, products and services to support their sports activities. Development of the USA SportsNet concept was previously deferred in order to focus on its electronic commerce concepts. The Company's current business plan calls for a partnership or spin-off for the further development of USA SportsNet. However, an online correspondence course is presently available to provide youth sports organizations with a convenient and cost-effective means of ensuring that volunteers are qualified to coach young athletes. It is maintained through an agreement with the North American Youth Sport Institute. All American Bowl The All American Bowl is a high school football all-star game, last played in 1997 when it was broadcast by the Sunshine Network and FOX SportsNet to over 40 million households. The game showcases the top college football recruits in the nation. We expects to be able to sell the rights to the All American Bowl because we believes that the event has the potential to attract sufficient sponsorship to achieve profitability or to become a component of a corporate marketing program. ProCard/ComCard ProCard/ComCard is a prepaid telephone card concept with features geared to the youth market. Designed to be marketed through youth sports organizations, the ProCard is programmed with speed-dial numbers to quickly reach family members and other important emergency contacts, such as the family doctor, in the event of injury. Mailboxes can be speed-dialed to access emergency medical information such as blood type, allergies and special medical conditions. The accompanying ComCard is retained by parents to control the speed-dial numbers programmed into the ProCard. The Company had planned to incorporate the ProCard/ComCard concept in the programs promoted through USA SportsNet. No further development of this product is contemplated. ITEM 2. PROPERTIES The Company does not own any real property. USA Performance Products, Inc. leases approximately 2,860 square feet of office and warehouse space located at 8125 Monetary Drive, Suite H-4, Riviera Beach, Florida. This space provides facilities for the manufacture and warehousing of its paintball products. Upon the June 30, 2001 expiration of its original lease of 5,720 square feet of space located at this address, the Company entered into a new lease of the smaller area due to the reduction in space requirements created by the sale of its 1-800-PAINTBALL business. The term of the new lease is for one year, beginning July 1, 2001 and ending June 30, 2002. The rental rate is $1,855 per month including sales tax. The corporate offices of eCom eCom.com, Inc. are housed in approximately 1,710 square feet of space at 2700 PGA Boulevard, Suite 103, Palm Beach Gardens, Florida. The three-year lease of this space commenced on April 1, 2001 and will expire on March 31, 2004. The rental rate including sales tax is $2,719 per month during the first year, $2,794 per month during the second year, and $2,870 per month during the third year. 6 The corporate offices of eCom eCom.com, Inc. are housed in approximately 1,710 square feet of space at 2700 PGA Boulevard, Suite 103, Palm Beach Gardens, Florida. The three-year lease of this space commenced on April 1, 2001 and will expire on March 31, 2004. The rental rate including sales tax is $2,719 per month during the first year, $2,794 per month during the second year, and $2,870 per month during the third year. The corporation rented 1,187 square feet of office space at 1999 University Drive, Coral Springs, Florida on June 2002. This space was used for the development and internet hosting of the MyPhotoZip software. This rental agreement was terminated in January 2003. The development and hosting of the MyPhotoZip software was moved to 2700 PGA Blvd., Palm Beach Gardens during January 2003. All of its office and warehouse facilities are currently leased pursuant to written agreements with unaffiliated parties. The Company maintains inventories that consist principally of finished goods and work-in-process inventory related to the manufacture of the Viper M1 paintball marker and its accessories. The Company owns tools, dies and fixtures for the manufacture of paintball products. Other properties consist of computer hardware and software and furniture, fixtures and equipment. ITEM 3. LEGAL PROCEEDINGS The Company is party to lawsuits in the normal course of business. Litigation can be expensive and disruptive to normal business operations; the results of legal proceedings are difficult to predict. Four companies had similar suits of non-payment against either eCom eCom.Com or it's subsidiary USA Performance Products. Each of these suits were settled during the fiscal year ending May 31, 2002. However, since that date two of the lawsuits (National Paintball and Renick) reopened after being settled. Our dispute with Impact Imaging Inc. was settled in Baltimore, Maryland on November 19, 2002. National Paintball Supply, Inc. filed a complaint against USA Performance Products and eCom eCom.com, Inc. in the State of South Carolina, Greenville County Court of Common Pleas on May 14, 2001. The complaint alleged that an amount of $85,743.35 is owed to the complainant. National Paintball Supply handled paintball fulfillment requests for USA Performance products. USA Performance Products contended that many requests for fulfillment were not completed while some requests were shipped twice. USA Performance Products has recorded a balance due of $69,373.36 as of May 31, 2001. As part of the SB-2 dated August 8, 2002, stock was registered to pay-off this debt. As of February 28, 2003 all stock that had previously been held in an Attorney escrow account, had been sold and transferred to National Paintball. The balance owed National Paintball as of May 31, 2003 is 59,475.83. The shortfall in payment was due to a delay in the SEC paperwork which occurred as the price of shares were dropping. Hence, National Paintball has reopened its lawsuit. A settlement is presently being negotiated. 7 Saeilo Manufacturing Industries filed a complaint against USA Performance Products Inc. in the Fifteenth Judicial Circuit, Palm Beach County, FL, on April 20, 2001. The complaint involved non-payment of $126,632.22 that Saeilo contends has been due since April 10, 2001. USA Performance Products moved to dismiss the case on the grounds that the claim is based upon an oral agreement without any terms and conditions of the agreement. USA Performance Products had only received delivery of $29,190.87 worth of products, which were accounted for in both inventory and accounts payable as of May 31, 2001. This case was settled on May 15, 2002 along with the following complaint from Renick Enterprises Inc. Renick Enterprises, Inc. filed a complaint against USA Performance Products and eCom eCom.com, Inc. in the Fifteenth Judicial Circuit, Palm Beach County, FL on April 30, 2001. The complaint involved non-payment of $180,865.22 for the design of the Viper I Paintball Marker, including various re-designs, working on advertising, and developing new products. Management contended that Renick had not satisfactorily completed production of the product and had not delivered the product to USA Performance Products Inc. USA Performance Products had only received delivery of $16,574.75 worth of products, which was accounted for in both inventory and accounts payable as of May 31, 2001. On May 15, 2002 a settlement was reached with Saeilo Manufacturing Industries and Renick Enterprises, Inc. As part of the settlement USAPP received cash, notes receivable, inventory, and cancellation of the accounts payable, totaling $127,493.59. USA Performance products gave up raw material located at both Saeilo and Renick totaling $37,919. USAPP and Saeilo then entered into an agreement where Saeilo would be allowed to manufacture a gun similar to the Viper-M1 and USAPP would be able to purchase parts from Saeilo for use in its Viper-M1. A delay by Renick in selling his shares while the price per share of ECEC stock was falling caused a shortfall in the value of Renick's ECEC stock. Hence, Renick has reopened its lawsuit. The shares were originally issued to Renick during June 2000 as full payment for work up to June 2000. The Company believes it has a written contract that proves it to be faultless in this matter. A settlement is presently being negotiated. Lycos, Inc. filed a complaint against eCom eCom.Com, Inc. in the State of Massachusetts, United States District Court on November 13, 2001. The complaint alleged that an amount of $159,500.00 plus attorneys' fees, costs and interest is owed to the complainant. Lycos, Inc. provided advertising impressions to eCom eCom.Com on the Lycos Network. eCOM eCOM.COM contended that Lycos was advised that the contract was cancelled. The shares issued as part of the SB-2 dated August 8, 2002 constitute full settlement of that suit. The case was dismissed. Litigation can be expensive and disruptive to normal business operations; the results of legal proceedings are difficult to predict. An unfavorable resolution of one outstanding lawsuit could adversely affect our business results of operations or financial conditions. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At its last annual shareholders' meeting held on April 26, 2001, the shareholders of the Company voted to reappoint Wieseneck, Andres & Co., P.A. as the Company's independent accountants. 8 On April 26, 2001 the following directors were elected to serve one-year terms or until replaced: David J. Panaia, Richard C. Turner, and Robert C. Wilson. In 2003 Robert C. Wilson resigned. A replacement is being sought. PART II ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS (a) Market for Common Equity The Company's common stock is traded on the Over the Counter Bulletin Board under the symbol "ECEC". The CUSIP number is 27889U-10-2. Equitrade Securities Corporation of Lake Forest, California was the lead market maker for the stock. However, Equitrade closed its doors earlier this year. The Company is in discussions with another broker to replace Equitrade as lead market maker. The following is a table of the high and low bid prices of the Company's stock for each of the four quarters of the fiscal year ended May 31, 2003: Quarter Ended High Low 5/2003 $0.035 $0.013 2/2003 0.060 0.018 11/2002 0.100 0.020 8/2002 0.140 0.070 These quotations reflect interdealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions. (b) Security Holders The Company has approximately 6,200 shareholders of record. (c) Dividends There have been no cash dividends declared or paid since the inception of the Company, and no cash dividends are contemplated to be paid in the foreseeable future. The Company may consider a potential dividend in the future in either common stock or the stock of future operating subsidiaries. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS AND PLAN OF OPERATION The results of its operations during the fiscal year ended May 31, 2003 were a reflection of the continued evolution of its business model. eCom recently changed its direction to focus on three of its current business segments, USA SportsNet, Inc., USA Performance Products, Inc., and MyZipSoft, Inc. which was established on March 3, 2003. This plan was undertaken for the purposes of allowing the management and employees the opportunity to operate each segment independently. Also, to have the ability for each segment, to raise its own funding for growth and expansion. The business segments are described below. 1. USA SportsNet Company, Palm Beach Gardens, Florida Product Line: e-Commerce business through Internet auction, sale and swapping of sports memorabilia. Articles are both company owned as well as those listed by private parties. 9 2. USA Performance Products, Inc., Riviera Beach, Florida Product Line: Manufactures and distribution of the Viper M1 paintball gun line. An M16 look alike gun which fires in all weather and is made entirely in the USA. 3. MyZipSoft, Inc., Palm Beach Gardens, Florida Product Line: Development and distribution of software. Its first product is a high-compression software called MyPhotoZip (TM). The Company considers this product "the ultimate image compression tool", that enables compression of still images up to 2000 to 1 without loss of quality The Company is also developing other cutting edge applications including video compression which could be introduced later this year. The Company has entered into a marketing agreement with Digital River for its on-line sales of MyPhotoZip (tm). It is too early in this arrangement to measure results. Previously, eCom developed an e-commerce infrastructure that provided an affordable, user-friendly technological platform to facilitate web business development. It also operated an on-line business as a test model, using Company developed e-commerce concepts to sell paintball products. However, the current business model was revised with the intention to eventually separate the e-commerce business segment, which is described above, along with the previously operated programs, for the purpose of allowing each of the three business segments the opportunity to grow on its own. The company realizes that it presently does not have the proper resources to develop all three segments simultaneously and is looking towards a partnership for each business segment so that it may obtain the necessary outside resources. The separation was also a result of past experiences which indicated that potential business partners desire to be involved with only one of the business segments. Comparison of Results of Operations - Year Ended May 31, 2003 vs. Year Ended May 31, 2002 Revenue for the year ended May 31, 2002 was $148,672 compared to 212,904 of revenue recorded during the same period of the prior year. On May 11, 2001 the Company sold the rights to use of the toll-free telephone number, 1-800-PAINTBALL, and related website addresses for a cash payment of $900,000. A gain on sale was recorded in the amount of $858,656. As a result of this sale, the Company has divested all of its paintball-related business with the exception of the manufacture and sale of the Viper M1 paintball marker. The USA Performance Products subsidiary had entered into a proposed sale of the Viper product line during February 2001. In order to comply with the terms of the sales contract, all Viper inventory was taken out of production in preparation of shipment during April 2001. The sale subsequently was canceled, but the fiscal year was complete before we was able to resume production of Viper products. The Viper product line restarted operations during July 2001. Since its business model is focusing on compression technology, funds have not been made available to market and resume full production of the Viper product line. The Company will continue to pursue the sale of this product line as part of the plan to divest all lines of business unrelated to MyPhotoZip (tm) software. Although the paintball product lines accounted for the majority of its 10 revenues ($137,729 and $212,093 in the years ended May 31, 2003 and 2002, respectively), the decision to sell this business was not difficult. Although the paintball product lines accounted for the majority of its revenues ($137,729 and $212,093 in the years ended May 31, 2003 and 2002, respectively), the decision to sell this business was not difficult. Following its evolution to an e-commerce company in 1999, the paintball operations were intended to serve as a model to demonstrate the viability of e-commerce concepts. This mission was accomplished, and there was no longer a reason to devote significant resources to further the development of the paintball business. The sale of extraneous product lines allows us to focus on much greater opportunities afforded by the development of MyPhotoZip (tm). With the sale of the 1-800-PAINTBALL assets, the Company reduced its expense levels and generated cash that was used to support its operations while significantly reducing its liabilities in the form of accounts payable and other debt. The Company expects to produce a similar result with the future sale of the Viper product line. Cost of sales decreased to $117,372 from $191,386 in the prior year (a decrease of 39%), while gross profit increased to $31,300 from $21,518 (an increase of 45%) in the prior year. The reduction in cost of sales reflected the decline in paintball sales. The margin realized on paintball products excluding depreciation expense improved during the current year to 48% from 33%. This increase in gross margin was due to a greater reliance on retail sales of both the Viper gun and MyPhotoZip. The prior year gross profit percentage reflected a higher volume of wholesale Viper gun sales. Total operating expenses for the year ended May 31, 2003 were $533,515 compared to $1,672,306 for the year ended May 31, 2002. Decreases in sales and marketing expense ($14,045 in fiscal year 2003 versus $77,119 in 2002); product development expense ($14,900 in fiscal year 2003 versus $59,641 in 2002); and general and administrative expense ($484,313 in fiscal year 2003 versus $1,533,396 in 2002) were the result of decreases in overhead as the company focuses its efforts towards the MyPhotoZip product line. The operations for the year ended May 31, 2003 resulted in a net loss of $770,790 versus a net loss of $1,482,533 recorded in the year ended May 31, 2001. Current year figures includes a $254,480 loss attributable to the decline in market value of two million shares of stock issued to an attorney escrow account which was to be used to settle legal bills, and accounts payable including the settlement with National Paintball Supply Inc. The prior year figures included gains recorded from the settlement of lawsuits which totaled $177,558. No provision for federal and state income taxes has been recorded because the Company has incurred net operating losses since inception. The net operating loss carry-forwards as of May 31, 2003 total $6,635,000. These carry-forwards will be available to offset future taxable income. If not used, the operating loss carry-forwards will expire from 2010 to 2018. The Company does not believe that the realization of the related deferred income tax assets meets the criteria required by generally accepted accounting principles and, accordingly, deferred income tax assets have remained at $0 as of May 31, 2003. 11 Liquidity and Capital Resources At May 31, 2003, current assets totaled $151,471 compared to $544,617 at the prior year-end. Of the $392,746 decrease in total current assets, prepaid assets accounted for $150,784 of the decrease and other current assets declined 187,000. On May 1, 2002 1,000,000 shares of common stock were issued to our attorney to pay for future legal costs. All million shares were sold during the quarter ending February 28, 2003 resulting in a loss of $116,418. Also on May 1, 2002 1,000,000 shares were placed in an attorney escrow account to settle our litigation with National Paintball. During the quarter ending February 28, 2003 all 1,000,000 shares were sold. A loss of 123,652 was recorded on the sale of the 1,000,000 shares from the attorney escrow account. A decrease in cash of $12,692 and in inventories of $26,144 helped to reduce accounts payable still remaining from our discontinued lines of business. Accounts payable decreased $16,881 from May 31, 2002 to May 31, 2003. Current liabilities increased from $866,929 at the end of the prior fiscal year to $875,569 at the end of the current year, an increase of $8,640. Net cash used in operating activities was $182,288 and $802,005 for the years ended May 31, 2003 and 2002, respectively. The principal use of cash in both periods was to fund our net loss from operations. The issuance of stock contributed $181,043 towards our operating deficit during the current year period down from $952,859 during the prior fiscal year. Investing activities provided $214,040 in cash during the prior fiscal year compared to no cash used in investing activities for the current fiscal year. During the prior year period, $300,000 was received from collection of the note receivable recorded from the sale of 1-800-PAINTBALL. Financing activities provided net cash of $169,595 during the current year, consisting primarily of loans from stockholders. The Company continues to be reliant on the combination of revenues, loans from stockholders and capital contributions to fund operations. The equity line agreement that was established with Swartz Private Equity, LLC was scheduled to end on April 28, 2003. The agreement was terminated on October 15, 2001 with a final sale of stock to Swartz to cover the outstanding account payable due to Swartz of $77,000. To the extent that additional funds are required to support operations or to expand our business, we may sell additional equity, issue debt or obtain other credit facilities through financial institutions. Any sale of additional equity securities will result in dilution to our shareholders. Until the Company obtains sufficient funds necessary to capitalize the growth of its existing operations, expenditures required to increase revenues, including advertising and promotion of compression software and Viper M1 paintball products, will be substantially limited. Should the Company be unable to obtain continued funding, its operations may be adversely affected. ITEM 7. FINANCIAL STATEMENTS The audited consolidated balance sheet of the Company for its years ended May 31, 2003 and 2002 and related consolidated statements of operations, stockholders' equity and cash flows for the years ended May 31, 2003 and 2002 are included, following Item 13, in sequentially numbered pages numbered F-1 through F-19. eCom eCom.com, INC. FINANCIAL STATEMENTS PERIOD ENDING MAY 31, 2003 AND 2002 The page numbers for the financial statement categories are as follows: Index Page Report of Independent Auditors F-1 Consolidated Balance Sheets as of May 31, 2003 and 2002 F-2 Consolidated Statements of Operations for the Years Ended May 31, 2003 and 2002 F-3 Consolidated Statement of Shareholders' Deficit for the Years Ended May 31, 2003 and 2002 F-4 Consolidated Statements of Cash Flows for the Years Ended May 31, 2003 and 2002 F-5 Notes to Consolidated Financial Statements F-7 13 F-1 WIESENECK, ANDRES & COMPANY, P.A. Certified Public Accountants 772 U.S. HIGHWAY 1, SUITE 200 NORTH PALM BEACH, FLORIDA 33408 (561) 626-0400 THOMAS B. ANDRES, C.P.A.*, C.V.A. Facsimile (561) 626-3453 PAUL M. WIESENECK, C.P.A. *Regulated by the State of Florida INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders eCom eCom.com, Inc. We have audited the accompanying consolidated balance sheets of eCom eCom.com, Inc. and subsidiaries as of May 31, 2003 and 2002 and the related consolidated statements of operations, shareholders' deficit, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audit in accordance with U.S. generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to in the first paragraph present fairly, in all material respects, the financial position of eCom eCom.com, Inc. and subsidiaries as of May 31, 2003 and 2002, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note Q to the financial statements, the Company's current liabilities exceed current assets by $724,000 and the Company has incurred net operating losses since inception. These conditions raise substantial doubt about its ability to continue as a going concern. Management's plans regarding those matters are also described in Note Q. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ Wieseneck, Andres & Company, P.A. September 26, 2003 14 F-2 ECOM ECOM.COM, INC. CONSOLIDATED BALANCE SHEETS MAY 31, 2003 and 2002 2003 2002 ------------ ------------ ASSETS Current Assets Cash and cash equivalents $ 111 $ 12,803 Accounts receivable other 347 1,473 Inventories 147,389 173,533 Prepaid expenses 3,624 154,408 Other current assets - 187,000 Note receivable - 15,000 ------------ ------------ Total Current Assets 151,471 544,217 ------------ ------------ Property and Equipment, net 47,292 92,345 ------------ ------------ Other Assets Intangible assets, net 74,978 4,010 Other assets 9,383 110,883 ------------ ------------ Total Other Assets 84,361 114,893 ------------ ------------ Total Assets $ 283,124 $ 751,455 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $ 270,585 $ 287,466 Accrued expenses 2,694 3,845 Unearned revenue - 100,000 Current portion of long-term debt 600,888 469,344 Interest accrued on current portion - 6,274 Other current liabilities 1,402 - ------------ ------------ Total Current Liabilities 875,569 866,929 Notes Payable, Net of Current Portion - - ------------ ------------ Total Liabilities 875,569 866,929 ------------ ------------ Stockholders' Equity Common stock, $.0001 par value, 50 million shares authorized, 36,393,112 and 26,739,512 shares issued and outstanding 3,639 2,674 Paid-in capital 6,048,622 5,755,767 Accumulated deficit (6,644,706) (5,873,915) ------------ ------------ Total Stockholders' Deficit (592,445) (115,474) ------------ ------------ Total Liabilities and Stockholders' Equity $ 283,124 $ 751,455 ============ ============ See accompanying summary of accounting policies and notes to financial statements. 15 F-3 ECOM ECOM.COM, INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED MAY 31, 2003 and 2002 2003 2002 _________________ _________________ Revenues Net Sales $ 148,672 $ 212,904 Cost of Sales (117,372) (191,386) ________________ ________________ Gross Profit 31,300 21,518 ________________ ________________ Other Operating Expenses General and administrative 484,313 1,533,396 Sales and marketing 14,045 77,119 Product development 14,900 59,641 Amortization 20,257 2,150 ________________ ________________ Total Operating Expenses 533,515 1,672,306 ________________ ________________ Loss from Operations (502,215) (1,650,788) ________________ ________________ Other Income (Expense) Interest income - 2,510 Interest expense (14,095) (11,813) Loss on disposal of asset (254,480) 177,558 _________________ ________________ Net Other Expenses (268,575) 168,255 _________________ ________________ Net Loss $ (770,790) (1,482,533) ================= ================ Basic and Diluted Loss Per Share $ (.024) (.063) ================= ================ Weighted Average Shares Outstanding 32,004,625 23,392,834 ================= ================ See accompanying summary of accounting policies and notes to financial statements. 16 F-4 ECOM ECOM.COM, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT FOR THE YEARS ENDED MAY 31, 2003 and 2002 Common Stock Number At Add'l Retained Total of Par Paid In Earnings Treasury Stockholder Shares Value Capital Deficit Stock Deficit ---------- ------ ---------- ----------- -------- ----------- Balance, May 31, 1998 11,894,600 $1,189 $ 484,361 $ (545,921) $(5,000) $ (65,371) Issuance of Common Stock 1,089,000 109 450,913 - - 451,022 Star Dot Marketing Pooling of Interest 675,000 68 1,269,932 (1,129,201) - 140,799 Net Loss - - - (619,606) - (619,606) ---------- ------ ---------- ----------- -------- ---------- Balance, May 31, 1999 13,658,600 1,366 2,205,206 (2,294,728) (5,000) (93,156) Issuance of Common Stock 1,227,075 123 1,649,655 - - 1,649,778 Net Loss - - - (2,633,426) - (2,633,426) ---------- ------ ---------- ----------- -------- ---------- Balance, May 31, 2000 14,885,675 1,489 3,854,861 (4,928,154) (5,000)(1,076,804) Issuance of Common Stock 4,125,161 412 1,977,151 - - 1,977,563 Sale of Star Dot Marketing - -(1,699,929) 1,876,158 - 176,229 Cancellation of Treasury stock - - (5,000) - 5,000 - Net Loss - - - (1,339,386) - (1,339,386) ---------- ------ ---------- ----------- -------- ----------- Balance, May 31, 2001 19,010,836 $1,901 $4,127,083 $(4,391,382)$ - $ (262,398) Issuance of Common Stock 7,728,676 773 1,628,684 - - 1,629,457 Net Loss - - - (1,482,533) - (1,482,533) ---------- ------ ---------- ----------- -------- ----------- Balance, May 31, 2002 26,739,512 $2,674 $5,755,767 $(5,873,915)$ - $ (115,474) Issuance of Common Stock 9,653,600 965 292,855 - - 293,820 Net Loss - - - (770,791) - (770,791) ---------- ------ ---------- ----------- -------- ----------- Balance, May 31, 2003 36,393,112 $3,639 $6,048,622 $(6,644,706)$ - $ (592,445) ========== ====== ========== =========== ======== =========== See accompanying summary of accounting policies and notes to financial statements. 17 F-5 ECOM ECOM.COM, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED MAY 31, 2003 and 2002 2003 2002 ---------- ---------- Cash Flows From Operating Activities Cash received from customers $ 148,672 $ 235,123 Interest income - 2,510 Cash paid to suppliers and employees (317,691) (1,039,149) Interest paid (13,269) (489) Income taxes paid - - ---------- --------- Net Cash Flows Used in Operating Activities (182,288) (802,005) Cash Flows From Investing Activities Cash received from sale of 1-800-Paintball - 300,000 Cash received from sale of rights to Viper-M1 - 25,000 Deposits made - (1,010) Deposits on software - (100,000) Cancellation of software deposit 100,000 - Recognition of unearned revenue (100,000) - Purchase of equipment - (11,137) Proceeds received from sale of equipment - 1,187 ---------- --------- Net Cash Flows Provided By (Used In) Investing Activities - 214,040 ---------- --------- Cash Flows From Financing Activities Proceeds from sale of stock 37,590 114,469 Proceeds of loans from stockholders 224,123 390,528 Repayment of loans to stockholders (92,117) (110,500) Proceeds from other loans - - Repayment of other loans - - Repayment of note - - ---------- --------- Net Cash Flows Provided By Financing Activities 169,595 394,497 ---------- --------- Net Increase (Decrease) in Cash (12,692) (193,468) Cash and Cash Equivalents at Beginning of Year 12,803 206,271 ---------- --------- Cash and Cash Equivalents at End of Year $ 111 $ 12,803 ========== ========== See accompanying summary of accounting policies and notes to financial statements. 18 F-6 ECOM ECOM.COM, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED MAY 31, 2003 and 2002 2003 2002 ---------- ---------- Supplemental Schedule of Non-Cash Financing Activities The following have been paid by the issuance of common stock: Payment of accounts payable, consulting fees and other expenses $ 251,854 $ 1,040,740 Acquisition of equipment - 7,549 Payment of research and development cost - 8,000 Payment of employee compensation - 76,165 Payment of loans and interest expense 24,510 193,520 Prepayment of professional fees - 337,000 Stock issued for purchase of intangibles 90,000 - Reconciliation of Net Loss to Net Cash Flows Used in Operating Account Net Loss $ (770,790) $(1,482,533) Add items not requiring outlay of cash: Depreciation and amortization 65,310 50,940 Bad debts - - Expenses paid by issuing common stock 181,043 952,859 Sale of Star Dot Marketing - net disposition of assets, liabilities, and equity - - Receipt of stock for services provided - - Write down of stock received to fair value - - Gain on sale of 1-800-Paintball - - Gain on licensing of Rights to Viper-M1 - (89,575) Gain on sale of other assets - (688) Loss on sale of other assets - 1,772 Cash was increased by: Decrease in accounts receivable 1,126 19,766 Decrease in inventory 26,144 95,989 Decrease in prepaid expenses 150,784 - Decrease in note receivable - 285,000 Decrease in other current assets 187,000 - Increase in accrued expenses - - Increase in other current liabilities 1,402 - Cash was decreased by: Increase in accounts receivable other - - Increase in prepaid assets - (147,755) Decrease in accounts payable (16,881) (487,564) Decrease in accrued expenses (1,151) (216) Decrease in commission payable - - Decrease in accrued interest payable (6,274) - ---------- ---------- Net Cash Flows Used in Operating Activities $ (182,288) $ (802,005) ---------- ---------- See accompanying summary of accounting policies and notes to financial statements. 19 F-7 ECOM ECOM.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MAY 31, 2003 AND 2002 NOTE A - NATURE OF OPERATIONS eCom eCom.com, Inc. ("eCom" or "the Company") was incorporated in the State of Florida on June 14, 1994. eCom's current business plan is focused on the development and marketing of applications for its high-compression software, called MyPhotoZip (tm). Previously, the Company developed an e-commerce infrastructure that enabled the small business enterprise to carve its niche in the retail and business to business Internet economy. eCom eCom B2Bplus provided an affordable, user- friendly technological platform and professional resources to facilitate web business development. The eCom eCom SuperHUB gives the web entrepreneur a comprehensive package of on-line tools to generate, execute and fulfill e- commerce transactions. The Company has also operated its own on-line business as a test model, using its e-commerce concepts to sell paintball products. However, the Company recently revised its business model in order to focus on the design and resale of MyPhotoZip (tm) software applications that will compress, store, protect and transmit large video data files. The Company's intention is to divest all other product lines to concentrate on the development of the market for this software. The Company's mission is to make this software available to reduce bandwidth demand and increase storage capabilities through development of custom applications that are not feasible using technology previously available. The Company was incorporated under the name US Amateur Sports, Inc. but changed its name in January 1999 to better reflect its business operations. eCom is the parent of US Amateur Sports Company, which is the parent of USA Performance Products, Inc. US Amateur Sports Company (USASC) owns the rights to: (1) the All American Bowl, a high school football all-star game, last played in 1997 when it was broadcast to over 40 million households; (2) the ProCard/ComCard, a prepaid phone card concept; and (3) USA SportsNet, which was planned to be an Internet portal for access to sports information, products and services with a focus on amateur athletes and local sports organizations. In addition, USASC owned the rights to use of the toll-free telephone number, 1-800-724-6822 (1-800-PAINTBALL) until it was sold as described below. USA Performance Products manufactures and distributes paintball guns and accessories. It has served as a test model for its e-commerce business concepts and has generated the majority of revenues to date. On January 21, 2000 the Company entered into a Stock Exchange Agreement with the shareholders of Star Dot Marketing, Inc. ("SDMI"), which provided for the transfer of all the outstanding common stock of SDMI to eCom eCom.com, Inc. in exchange for 675,000 shares of common stock. The transaction was closed on May 31, 2000. SDMI uses the trade name "Treasures of Sports" to offer a complete line of guaranteed authentic, hand signed sports memorabilia and other sports products. These products are marketed through joint sales agreements with professional sports franchises. 20 ECOM ECOM.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MAY 31, 2003 AND 2002 NOTE A - NATURE OF OPERATIONS (CONTINUED) Consistent with the intent to divest all businesses and product lines unrelated to MyPhotoZip (tm) compression software, the sale of one business and one product line was consummated in the year ended May 31, 2001. On May 11, 2001 rights for the use of the toll-free telephone number, 1-800- PAINTBALL, and related website addresses were sold for a cash payment of $900,000. On May 31, 2001 the Company sold all of the stock of Star Dot Marketing, Inc. in return for assumption of debt of $208,000 owed to the original owners of SDMI. In August 2001, eCom entered into a joint venture agreement with PremierSoft, Inc. to form a new company called ZyndeCom, Inc. ZyndeCom will market the "Z Box," a software utility that combines DryIce (tm) with PremierSoft's Syndeos (tm) software. Syndeos (tm) integrates software and hardware systems that have been created independently. This joint venture is the first step to moving the DryIce (tm) business concept into a revenue-generating stage. The joint venture was eventually terminated. NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation, Use of Estimates The Company maintains its accounts on the accrual basis of accounting. The preparation of financial statements in conformity with U.S. generally accepted accounting principles 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. Consolidation The consolidated financial statements of the Company include the accounts of USA Performance Products, Inc. and the parent company eCom eCom.com Inc. The Company formed USA Performance Products, Inc. as a separate wholly owned subsidiary on January 20, 1998 and transferred all assets related to the manufacture and sale of the Viper M1 paintball marker and accessories to this new corporation. The Company expanded the activities of USA Performance Products in 1999 by selling other paintball products through use of the 800-PAINTBALL toll-free telephone number and related website acquired by USASC. Revenue Recognition Revenue from the sale of paintball markers and accessories and sports related memorabilia is recognized at the time title is transferred which is normally on shipment of the goods. Revenue received from contracts for web site development services is recorded as unearned revenue until development of the related web site is complete and accepted by the client. 21 ECOM ECOM.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MAY 31, 2003 AND 2002 NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Cash Cash consists of deposits in banks and other financial institutions having original maturities of less than ninety days. Allowance for Doubtful Accounts It is the policy of management to review the outstanding accounts receivable at year end, as well as the bad debt write offs experienced in the past, and establish an allowance for doubtful accounts for uncollectible amounts. Property and Equipment Property and equipment is stated at cost. The costs of additions and better- ments are capitalized and expenditures for repairs and maintenance are expensed in the period incurred. When items of property and equipment are sold or retired, the related costs and accumulated depreciation are removed from the accounts and any gain or loss is included in income. Depreciation and amortization of property and equipment is provided utilizing the straight-line method over the estimated useful lives of the respective assets. Amortization Intangible assets consisting of rights to technology and associated trademarks are amortized using the straight-line method over five years. Inventories Inventories are stated at the lower of cost or market using the first in first out method. Earnings (Loss) Per Share In March 1997, the FASB issued SFAS No. 128, "Earnings per Share." This Statement was effective for interim and fiscal periods ending after December 15, 1997. This Statement requires the presentation of (1) diluted earnings per share, whose calculations includes not only average outstanding common share but also the impact of dilutive potential common shares such as outstanding common stock options; and (2) basic earnings per share which includes the effect of outstanding common shares but excludes dilutive potential common shares. Although including potential common share in the diluted per share computations may be dilutive to their comparable basic per share amounts, no potential common shares are included in the computation of any diluted per share amount when a loss from continuing operations exists. 22 ECOM ECOM.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MAY 31, 2003 AND 2002 NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The number of potential dilutive shares excluded from the Company's calculation of diluted earnings per share based on their anti-dilutive effect was 521,366 for the year ending May 31, 2003. Per Loss Shares Share (Numerator) (Denominator) Amount For the year ending May 31, 2003: Basic earnings per share Loss applied to common shareholders $ (770,790) 32,004,625 $(0.02) NOTE C - INVENTORIES Inventories consist principally of paintball markers and paintball accessories and sports-related memorabilia. Inventories are carried at cost, which is considered to be less than market value. Maintenance, operating and office supplied are not inventoried. At May 31, 2003 and 2002, inventory consisted of the following: May 31, 2003 May 31, 2002 Finished goods $ 6,074 $ 7,488 Work in process 141,315 166,045 Raw materials 0 0 ----------- ----------- Total inventory $ 147,389 $ 173,533 NOTE D - PREPAID EXPENSES The Company issued 1 million shares of common stock ($150,000) as a retainer for future legal fees during May 2002. The value of the prepaid legal fees were recorded at the quoted market price of the common stock on the date of issuance. Due to the decline in the market value of the company's common shares, this retainer was depleted by February 2003. The $116,400 loss in value of the market value of common stock was written off during the quarter ending February 2003. The remaining prepaid expenses consist principally of amounts paid for rent and service agreements. NOTE E - OTHER CURRENT ASSETS The Company issued 100,000 shares ($37,000) and 1 million shares ($150,000) of unrestricted common stock. The proceeds from the sale of this stock is to be held in an attorney escrow account for payment of future costs. The value of the prepaid expenses were recorded at the quoted market price of the common shares on the date of issuance May 1, 2002. These shares were sold between November 2002 and February 2003, resulting in a net loss to the company of $160,652. 23 ECOM ECOM.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MAY 31, 2003 AND 2002 NOTE F - NOTE RECEIVABLE As part of settlement of the Saeilo and Renick litigation, on May 15, 2002, Saeilo agreed to pay cash, inventory and forgive indebtedness, totaling $127,494 for the right to manufacture a paintball gun similar to the Viper M-1. Cash in the amount of $25,000 was received at closing with an additional $15,000 due June 15, 2002. The note did not state any interest or collateralization. The payment was received in a timely manner. NOTE G - MARKETABLE SECURITIES The Company received 1.5 million common shares (.0001 par value) of eWebPEO ..com, Inc. in the prior fiscal year in payment for services rendered to the Company. The Company initially recorded the value of the securities and the income on the books at $150. eWebPEO.com, Inc. subsequently went out of business and the investment was written down to zero. NOTE H - PROPERTY AND EQUIPMENT The following is a summary of property and equipment recorded in the financial statements at cost less depreciation as of May 31, 2003 and May 31, 2002: May 31, 2003 May 31, 2002 -------------- -------------- Computer hardware $ 150,111 $ 150,111 Computer software 56,308 56,308 Furniture, fixtures and equipment 47,760 47,760 Tools, dies and fixtures 57,401 57,401 Leasehold improvements 0 0 --------- --------- Total cost 311,580 311,580 Accumulated depreciation 264,288 219,235 --------- --------- Net Property and Equipment $ 47,292 $ 92,345 ========= ========= Depreciation expense included in the cost of sales for the years ended are: $ 45,053 $ 48,790 ========= ========= The useful lives assigned to property and equipment to compute depreciation are: Computer Hardware 5 years Computer Software 5 years Furniture, fixtures and equipment 7 years Tools, dies and fixtures 5 years 24 ECOM ECOM.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MAY 31, 2003 AND 2002 NOTE I - INTANGIBLE ASSETS In February 1999, the Company acquired two Internet websites, AclassifiedAd and Swapandshop, for a total cost of $11,200. These assets are amortized over five years. Accumulated amortization related to these assets was $9,430 and $7,190 as of May 31, 2003 and May 31, 2002, respectively. On July 1, 2002, the Company acquired the licensing rights to Pandora and Virtual Protect from Internet Security Solutions, for a total cost of $56,250. This asset is being amortized over five years. Accumulated amortization related to this asset is $11,250 as of May 31, 2003. On July 1, 2002, the Company paid Peter Tamayo, Jr. to work with MeVis Technologies to complete the development of MyPhotoZip, for a total cost of $33,750. This asset is being amortized over five years. Accumulated amortization related to this asset is $6,750 as of May 31, 2003. On September 18, 2002, the Company issued 25,000 shares of stock as an initial payment towards the purchase of FotoCrazy software. This initial deposit was recorded as $1,125. NOTE J - OTHER ASSETS In September 2001, the Company made a deposit of $100,000 towards the purchase of software. As part of the settlement with Impact Labs during November 2002, this software contract was cancelled. Other assets consist primarily of security deposits on the lease of office facilities, an employee advance and utility deposits. NOTE K - LONG-TERM DEBT Long-term debt at May 31, 2003 and May 31, 2002 consisted of: May 31, 2003 May 31, 2002 ------------ ------------ A noninterest bearing, noncollateralized loan from an offshore corporation, See Note O. There is no fixed or determinable date to repay this loan. 184,220 184,220 Noninterest bearing, non-collateralized loans from stockholders. The loans are due on demand. 416,668 285,124 ---------- ---------- Total Long-Term Debt 600,888 469,344 Less Current Portion (600,888) (469,344) ---------- ---------- Net Long-term Debt $ 0 $ 0 ========== ========== The long-term loans payable mature as follows: May 31, 2003 0 469,344 May 31, 2004 600,888 0 ---------- ---------- $ 600,888 $ 469,344 ========== ========== 25 ECOM ECOM.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MAY 31, 2003 AND 2002 NOTE L - UNEARNED REVENUE The Company has received a total of $100,000 in cash as a non-refundable, good faith down payment for services that include delivery of a special application of the DryIce software. Due to the settlement with Impact Imaging, Development of this software application can no longer be completed. The non-refundable deposit was written off as a credit against the loss on disposition of asset account on November 19, 2002. NOTE M - COST OF SALES Included in the cost of sales are the following: May 31, 2003 May 31, 2002 Shipping and handling costs $ 0 $ 28 Packaging costs 460 1,103 ----------- ----------- Total $ 460 $ 1,131 =========== =========== NOTE N - COMMITMENTS AND CONTINGENCIES The Company leases office facilities under an operating lease one which expires on March 31, 2004. The Company leases its manufacturing facility under an operating lease which expired June 30, 2002. A new lease was negotiated for the manufacturing facility on July 1, 2003. Future minimum lease payments including sales tax as of May 31, 2003 are: Fiscal Years ending: May 31, 2004 28,700 May 31, 2005 0 -------- Total Minimum Lease Payments $ 28,700 ======== Rent expense for the periods ending May 31, 2003 and 2002 are $70,377 and $56,020 respectively. The Company is party to lawsuits in the normal course of business. Litigation can be expensive and disruptive to normal business operations; the results of legal proceedings are difficult to predict. Four companies had similar suits of non-payment against either eCom eCom.Com or USA Performance Products. Each of these suits were settled during the fiscal year ending May 31, 2002. However, since that date two of the lawsuits (National Paintball and Renick) reopened after being settled. Our dispute with Impact Imaging Inc. was settled in Baltimore, Maryland on November 19, 2002. 26 ECOM ECOM.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MAY 31, 2003 AND 2002 NOTE N - COMMITMENTS AND CONTINGENCIES (CONTINUED) National Paintball Supply, Inc. filed a complaint against USA Performance Products and eCom eCom.com, Inc. in the State of South Carolina, Greenville County Court of Common Pleas on May 14, 2001. The complaint alleged that an amount of $85,743.35 is owed to the complainant. National Paintball Supply handled paintball fulfillment requests for USA Performance products. USA Performance Products contended that many requests for fulfillment were not completed while some requests were shipped twice. As part of the SB-2 dated August 8, 2002, stock was registered to pay-off this debt. As of February 28, 2003 all stock that had previously been held in an Attorney escrow account, had been sold and transferred to National Paintball. The balance owed National Paintball as of May 31, 2003 is 59,475.83. The shortfall in payment was due to a delay in the SEC paperwork which occurred as the price of shares were dropping. Hence, National Paintball has reopened its lawsuit. A settlement is presently being negotiated. Saeilo Manufacturing Industries filed a complaint against USA Performance Products Inc. in the Fifteenth Judicial Circuit, Palm Beach County, FL, on April 20, 2001. The complaint involved non-payment of $126,632.22 that Saeilo contends has been due since April 10, 2001. USA Performance Products moved to dismiss the case on the grounds that the claim is based upon an oral agreement without any terms and conditions of the agreement. This case was settled on May 15, 2002 along with the following complaint from Renick Enterprises Inc. Renick Enterprises, Inc. filed a complaint against USA Performance Products and eCom eCom.com, Inc. in the Fifteenth Judicial Circuit, Palm Beach County, FL on April 30, 2001. The complaint involved non-payment of $180,865.22 for the design of the Viper I Paintball Marker, including various re-designs, working on advertising, and developing new products. Management contended that Renick had not satisfactorily completed production of the product and had not delivered the product to USA Performance Products Inc. On May 15, 2002 a settlement was reached with Saeilo Manufacturing Industries and Renick Enterprises, Inc. As part of the settlement USAPP received cash, notes receivable, inventory, and cancellation of the accounts payable, totaling $127,493.59. USA Performance products gave up raw material located at both Saeilo and Renick totaling $37,919. USAPP and Saeilo then entered into an agreement where Saeilo would be allowed to manufacture a gun similar to the Viper-M1 and USAPP would be able to purchase parts from Saeilo for use in its Viper-M1. A delay by Renick in selling his shares while the price per share of ECEC stock was falling caused a shortfall in the value of Renick's ECEC stock. Hence, Renick has reopened its lawsuit. The shares were originally issued to Renick during June 2000 as full payment for work up to June 2000. The Company believes it has a written contract that proves it to be faultless in this matter. A settlement is presently being negotiated. Lycos, Inc. filed a complaint against eCom eCom.Com, Inc. in the State of Massachusetts, United States District Court on November 13, 2001. The complaint alleged that an amount of $159,500.00 plus attorneys' fees, costs 27 ECOM ECOM.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MAY 31, 2003 AND 2002 NOTE N - COMMITMENTS AND CONTINGENCIES (CONTINUED) and interest is owed to the complainant. Lycos, Inc. provided advertising impressions to eCom eCom.Com on the Lycos Network. eCOM eCOM.COM contended that Lycos was advised that the contract was cancelled. The shares issued as part of the SB-2 dated August 8, 2002 constitute full settlement of that suit. The case was dismissed. Litigation can be expensive and disruptive to normal business operations; the results of legal proceedings are difficult to predict. An unfavorable resolution of one outstanding lawsuit could adversely affect our business results of operations or financial conditions. NOTE O - RELATED PARTY TRANSACTIONS On January 10, 1998, the Company's Board of Directors approved an agreement with Axis Enterprises, Ltd., a corporation located in Nassau, Bahamas. Axis has an equity interest in the Company. Axis was retained for a period of three years to provide certain financing, marketing and management services in support of the Company's subsidiary, USA Performance Products, Inc. In exchange for performance of these services, Axis was granted 1,500,000 shares of common stock. The final marketing and management agreement was executed on April 8, 1998. Derek D. Panaia, son of David J. Panaia, CEO of the Company, was retained as a consultant to provide management oversight of USAPP in connection with this agreement. In 1999, Axis loaned the Company $296,000, and this indebtedness was reduced by $111,780 through the issuance of 150,000 shares of the Company's common stock. The Company is currently indebted to Axis for $184,220. The Company has received cash advances from David J. Panaia, Chairman and CEO of the Company, in varying amounts and at various times subsequent to the inception of the Company. These shareholder loans were non-interest bearing, non-collateralized and due on demand. On May 10, 2001, 1,286,359 shares of restricted stock were issued to Mr. Panaia, CEO in return for cancellation of $437,362 of the debt owed to him. The amount of stockholder loans that were reduced was based on the quoted market price ($.68) on the date the common shares were issued and adjusted by a discount of 50% due to the restrictions placed on the stock. The balance owed to Mr. Panaia at May 31, 2003 is $258,321. The Company has received cash advances from Bonnie Crum, daughter of David J. Panaia, CEO of the Company, in varying amounts and at various times subsequent to May 31, 2001. These related party loans were non-interest bearing, non- collateralized and due on demand. The balance owed to Ms. Crum as of May 31, 2003 is $40,000. 28 ECOM ECOM.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MAY 31, 2003 AND 2002 NOTE P - BUSINESS SEGMENTS The Company's reportable segments are strategic business units that offer different products and services. The Company has three reportable segments: paintball products, electronic commerce and sports memorabilia. The paintball segment manufactures and distributes paintball guns and accessories. The electronic commerce segment has provided an e-commerce infrastructure to enable small businesses to expand to the internet and is now focused on the design and resale of software applications for compression and transmission of large data files. The sports memorabilia segment acquires various signed sports related items from individuals in the various professional leagues for resale. The business related to this segment, Star Dot Marketing, was sold on May 31, 2001. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. There have been no intersegment sales or transfers. Revenues from sales of the Company's paintball products over the Internet are reported within the paintball segment. The following is a summary of segment activity: Electronic Paintball Commerce Totals Year Ended May 31, 2003 Revenues $ 137,729 $ 10,944 $ 148,673 Interest revenue - - - Interest expense 270 13,825 14,095 Depreciation 23,145 21,908 45,053 Amortization - 20,257 20,257 Non-cash expense 166,902 293,425 460,327 Segment gain (loss) (207,564) (563,226) (770,790) Segment assets 195,762 117,130 312,892 Electronic Paintball Commerce Totals Year Ended May 31, 2002 Revenues $ 212,088 $ 812 $ 212,900 Interest revenue - 2,510 2,510 Interest expense 968 10,845 11,813 Depreciation 26,538 22,253 48,791 Amortization - 2,150 2,150 Non-cash expense 44,918 973,820 1,018,738 Segment gain (loss) (57,942) (1,424,591) (1,482,533) Segment assets 431,287 320,168 751,455 (a) Includes amounts not allocated to operating segments. 29 ECOM ECOM.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MAY 31, 2003 AND 2002 NOTE Q - RECOVERABILITY OF ASSETS AND GOING CONCERN These financial statements are presented on the basis that the Company is a going concern. Going concern contemplates the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable length of time. The accompanying financial statements show that current liabilities exceed current assets by $323,000 at May 31, 2002 and by $724,000 at May 31, 2003 and that the Company has incurred net operating losses since inception. eCom will have to fund future operations and software development through product sales, asset sales, shareholder loans and private sales of company stock. The sales of MyPhotoZip began on July 31, 2002, the product was released with a 30 day free trial. Subsequent to May 31, 2003, eCom contracted with Digital River Inc to market and distribute MyPhotoZip. USA Performance Products completed its approval with the United States General Services Administration. The Viper M-1 paintball gun can now be purchased through GSA Advantage, the Federal Government's online purchasing system. eCom is continuing to look for buyers for the USA Performance Products division. In accordance with the May 2001 agreement to sell the 1-800-PAINTBALL number, the Company agreed not to sell paintball accessories for a period of three years. The company continues to manufacture and sell the Viper paintball gun. The Company is currently focusing its efforts on the design and resale of MyPhotoZip (tm) software that compresses, stores, protects and transmits large data files. NOTE R - INCOME TAXES Deferred income taxes are provided for temporary differences between the financial reporting and income tax basis of the Company's assets and liabilities. Temporary differences, net operating loss carry forwards and valuation allowances comprising the net deferred taxes on the balance sheets is as follows: March 31, 2003 -------------- Loss carry forward for tax purposes $ 6,635,000 ============== Deferred tax asset (34%) 2,256,000 Valuation allowance (2,256,000) -------------- Net deferred tax asset - ============== Through May 31, 2003, the Company had a federal income tax net operating loss carry forward of approximately $6,635,000 which will expire through the year 2023. 30 ECOM ECOM.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MAY 31, 2003 AND 2002 NOTE S - EFFECTS OF INFLATION To date, inflation has not had a material impact on the Company's consolidated financial results. NOTE T - RECENT ACCOUNTING PRONOUNCEMENTS In December 1999, the staff of the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 ("SAB 101"). SAB 101 summarizes certain areas of the Staff's views in applying generally accepted accounting principles to revenue recognition in financial statements. The Company adopted SAB 101 in its fiscal quarter beginning June 1, 2000. The adoption of SAB 101 had no impact to the operating results and financial position. The FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS No. 133", as amended by SFAS No. 138). This statement establishes accounting and reporting standards requiring that every derivative instrument, including certain derivative instruments embedded in other contracts, be recorded in the balance sheet as either an asset or liability measured at its fair value. The statement also requires that changes in the derivative's fair value be recognized in earnings unless specific hedge accounting criteria are met. The Company adopted SFAS No. 133 in its fiscal quarter beginning June 1, 2000. The adoption of SFAS No. 133 had no impact to the operating results and financial position, since the Company currently does not invest in derivative instruments or engage in hedging activities. In July 2001, the FASB issued SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. These standards, among other things, eliminate the pooling of interests method of accounting for future acquisitions and require that goodwill no longer be amortized, but instead be subject to impairment testing at least annually. SFAS No. 142 must be adopted in fiscal years beginning after December 15, 2001 as of the beginning of the fiscal year. Companies with fiscal years beginning after March 15, 2001 may early adopt provided they have not yet issued their first quarter financial statements. Goodwill and intangible assets acquired prior to July 1, 2001 will continue to be amortized and tested for impairment in accordance with pre- SFAS No. 142 requirements until adoption of SFAS No. 142. Under the provision of SFAS No. 142, intangible assets with definite useful lives will be amortized to their estimatable residual values over those estimated useful lives in proportion to the economic benefits consumed. Such intangible assets remain subject to the impairment provisions of SFAS No. 121. Intangible assets with indefinite useful lives will be tested for impairment annually in lieu of being amortized. The Company's current yearly amortization of intangible assets is approximately $21,067. The impact of adopting SFAS Nos. 141 and 142 will not cause a material change in the Company's consolidated financial statements as of the date of this report. 31 ECOM ECOM.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MAY 31, 2003 AND 2002 NOTE T - RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED) The FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations with an effective date for financial statements issued for fiscal years beginning after June 15, 2002. The statement addresses financial accounting and reporting for obligations related with the retirement of tangible long-lived assets and the costs associated with asset retirement. The statement requires the recognition of retirement obligations which will, therefore, generally increase liabilities; retirement costs will be added to the carrying value of long-lived assets, therefore, assets will be increased; and depreciation and accretion expense will be higher in the later years of an assets life than in earlier years. The Company adopted SFAS No. 143 at January 1, 2002. The adoption of SFAS No. 143 had no impact on the Company's operating results or financial positions. The FASB also issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets and is effective for financial statements issued for fiscal years beginning January 1, 2002. This statement addresses financial accounting and reporting for the impairment or the disposal of long-lived asset. An impairment loss is recognized if the carrying amount of a long- lived group exceeds the sum of the undiscounted cash flow expected to result from the use and eventual disposition of the asset group. Long-lived assets should be tested at least annually or whenever changes in circumstances indicate that its carrying amount may not be recoverable. This statement does not apply to goodwill and intangible assets that are not amortized. The Company adapted SFAS No. 144 in the first quarter of 2002. The adoption of SFAS No. 144 had no impact on the Company's operating results or financial position. NOTE U - PRIVATE EQUITY LINE In April of 1999, the Company entered into a three-year agreement for a Private Equity Line of Common Stock pursuant to Regulation D with Swartz Private Equity, LLC for $30 million with a $20 million option. For each Put, Swartz shall receive an amount of warrants equal to 8% of the number of shares purchased under the Equity Line at an Exercise Price equal to 110% of the Closing Bid Price on the Put Date. Warrants shall have piggyback registration rights and reset provisions. As compensation to enter in to the Equity Line Commitment, Swartz received a warrant convertible into 521,366 shares of eCom Common Stock. The Commitment Warrants' exercise price shall equal the average closing bid price for the 5 trading days prior to execution of this Equity Line Letter of Intent. Warrants shall have a 5-year term, piggyback registration rights and reset provisions. The Company filed a registration statement on Form S-1 with the Securities and Exchange Commission which was declared effective by the Commission on April 28, 2000, and which allowed the Company to exercise its rights under the 32 ECOM ECOM.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MAY 31, 2003 AND 2002 NOTE U - PRIVATE EQUITY LINE (CONTINUED) agreement. However, the Company could make no assurances that the market in the Company's stock would remain adequate to allow the Company to raise necessary funds through the use of the Put Option. The price and number of shares which could be put to Swartz in any 30 day period was dependent upon the Company's share price as determined on the OTC Bulletin Board and volume of trading activity. The agreement ended in April 2002. As a result of a decline in the volume and share price of the Company's stock during the period between execution of the agreement and the declaration of effectiveness of the registration statement, only minor amounts of funds were raised from use of the Private Equity Line. ITEM 8. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None. PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED The following sets forth the names and ages of all of the Directors and Executive Officers of eCom, positions held by such persons, length of service, when first elected or appointed and term of office. First Term of Name Age Position Appointed Office - ----------------- --- ------------------- ----------- -------- David J. Panaia 63 Chairman, Chief June 1994 (1),(2) Executive Officer and Director Peter Tamayo, Jr. PHD 40 President (effective June 2002) Robert C. Wilson 50 President and Director April 2001 (1),(2) (resigned May 2003) Richard C. Turner 43 Chief Financial Officer April 2001 (1),(2) Treasurer and Director (1) Officers serve at the pleasure of the Company's Board of Directors. (2) Each of these Directors was elected to serve until the next Annual Meeting of Shareholders. The Company currently intends to hold its next annual meeting during February 2004. The Board of Directors sets corporate policies that are implemented by the Company's management. In the event that the Board of Directors determines that a member faces a conflict of interest, for any reason, it is expected that the subject director will abstain from voting on the matter that raised the issue. 33 David J. Panaia, Chairman, Chief Executive Officer, and Director, is the founder of eCom and has served as Chairman and Director since incorporated in June 1994. Mr. Panaia previously founded several medical businesses which were later sold. From 1988 to 1994, he served as a political and small business marketing consultant through his own firm, Sunpoint Industries, Inc. Sunpoint offered consulting services to candidates and medical equipment businesses located in the United States. Mr. Panaia has served in numerous community, business and political capacities. He concentrates full time on his duties as the Chairman of eCom. Peter Tamayo, Jr. Ph.D. President and Chief Technology Officer started with Company in June 2002 and was appointed President in July 2002. Prior to joining eCom eCom.com, Inc. Dr. Tamayo served as Chairman and CEO of Internet Security Solutions, Inc. (ISS). Dr. Tamayo has more than 24 years of high technology experience in computer and electronics applications including computer language design, software engineering, and computer hardware and chip manufacturing. He has worked with industry leaders such as Microsoft, IBM, Compaq, Emulex, and several others in research, development, and marketing of several of the companies' leading software and computer hardware solutions. Dr. Tamayo also served as President and CTO of United Interactive Technologies, Inc. and Senior VP and CTO of InteractiveTechnologies.com, LTD (INTR), a leading South Florida ISP / ASP that established the first Network Access Point (NAP) in the state of Florida. In 1981 he graduated from Morgan Technical Institute with majors in Industrial Electronics, Computer Science and Technology. Dr. Tamayo holds a masters degree in Business Administration and doctorate degree in Computer Science and Technology from the Vernell University. His doctoral thesis is titled "Implementing Public Key Encryption infrastructures for Organizations and Wide Area Networks". Dr. Tamayo continues his education, research, and development studies at leading corporate think tanks and is currently working on his second doctorate degree. Richard C. Turner, who started with the Company in June of 2001 as Chief Financial Officer, Treasurer and Director, worked with Glenn G. Schanel, CPA, from September 1990 until his appointment with eCom. Mr. Turner specialized in assisting clients with accounting, tax and office technology issues. A 1981 graduate of Rutgers University, Mr. Turner attended graduate school at New York University until 1989. From May 1989 until September 1990 Mr. Turner served as Vice President of Finance at First American Bank, Lake Worth, Florida, where he was responsible for the bank's financial reporting, budgeting and cost accounting. Mr. Turner has served as Treasurer and as a member of the board of directors of both the Palm Beach Business Associates and the North Palm Beach / Palm Beach Gardens Jaycees. He concentrates full time on his duties as Chief Financial Officer of eCom. Robert C. Wilson, ex-Director, also served as President and COO of eCom from June 2001 to July 2002. He has since joined World Data Group, LLC. a soft- ware technology company. World Data Group is a Teaming Partner of eCom. In 1996, he established Wilson and Associates, a medical accounts receivable factoring company, where he served as Managing General Partner. From 1992 through 1995 he served as Vice President of Sales for Optimum Capital Corporation, Walnut Creek, California. 34 The bylaws provide for indemnification of officers, directors or eCom agents against legal expenses, judgments, fines, settlements and other amounts reasonably incurred by such persons after having been made or threatened to be made a party to legal action. Payment of such amounts may also be made in advance if expenses are likely to be incurred by officers, directors or agents in defense of any such action. The extent, amount and eligibility for the indemnification provided will be determined by the Board of Directors. These indemnifications will be made by a majority vote of a quorum of directors, including any director who is a party to such action, suit, or proceeding or by the shareholders by a majority vote of a quorum of shareholders including any shareholder who is a party to such action, suit or proceeding. The Company is further authorized by the bylaws to purchase insurance for indemnification of any person as provided by the bylaws and to the extent provided by Florida law. The Company at this time has no insurance coverage for officers and directors and has not expended any funds to obtain such insurance policies to insure or indemnify directors or officers against any liabilities that may occur. Management reserves the right to obtain such insurance. Florida Statutes Section 607.0850 authorizes indemnification of officers, directors, employees and agents in instances constituting: (1) certain violations of criminal law which the person did not know were illegal, or (2) actions taken in good faith by persons which were intended to be in the best interests of the corporation. Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to directors, officers and controlling persons of eCom pursuant to the foregoing provisions or otherwise, the Company have been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by eCom of expenses incurred or paid by a director, officer or controlling person of eCom in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by eCom is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. ITEM 10. EXECUTIVE COMPENSATION The following table provides information regarding the executive compensation of persons serving as eCom's executive officers during the fiscal years ended 2003, 2002 and 2001. 35 Summary Compensation Table Long Term Compensation Annual Compensation Awards Payouts Securities Other Restr. Underlying All Annual Stock Options/ Other Name and Principal Compen- Awards SARs LTIP Compen- Position Year Salary Bonus sation No.Shares (No.) Payouts sation David J. Panaia 2003 0 0 0 0 0 0 0 Chairman, CEO 2002 0 0 0 0 0 0 0 2001 0 0 0 0 0 0 0 Peter Tamayo, Jr. 2003 75,000 0 0 750,000 0 0 0 President & CTO Richard C. Turner 2003 52,000 0 0 0 0 0 0 CFO and Treasurer 2002 52,000 0 0 150,000 0 0 0 Robert C. Wilson 2003 0 0 0 65,000 0 0 0 ex-President 2002 52,000 0 0 150,000 0 0 0 2001 0 0 0 0 0 0 0 Charles W. Hansen 2001 100,000 0 0 100,000 0 0 9,706(1) ex-President and CEO (1) Charles Hansen participated in a stock incentive plan which gave him the opportunity to earn up to 25,000 shares of free-trading stock per year. The stock was granted in pro rata monthly increments adjusted for market price fluctuations. At the time the plan was discontinued, Mr. Hansen had received 9,706 shares. None of eCom's current executive officers has an employment agreement or stock option arrangement with eCom. It is intended that the directors be compensated at the rate of $4,000 per year, plus $100.00 per meeting attended and reasonable travel expenses if cash flow permits. Charles W. Hansen, III, who was appointed President and Chief Executive Officer on July 21, 2000, was employed from March 6, 2000 until December 18, 2000. Mr. Hansen had an employment agreement under which he was compensated with an annual salary of $100,000 plus participation in a stock incentive plan. Upon commencement of employment as Vice President Operations in March 2000, Mr. Hansen was awarded 100,000 shares of restricted stock. When cash flow permits, it is anticipated that other officers will be compensated in accordance with appropriate employment contracts. 36 ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT As of the date of this report, the Company has a total of 50,000,000 shares of Common Stock authorized at a par value of $.0001, and there are 36,393,112 shares of Common Stock outstanding. The following table sets forth information, as of such date, with respect to the beneficial ownership of Common Stock by (a) each person known by us to be the beneficial owner of more than 5% of the outstanding Common Stock, (b) the directors and officers of eCom, and (c) the directors and officers of eCom as a group. Number of % of Shares Name and Address Shares Owned Outstanding ---------------- ------------ ----------- David J. Panaia (1) 6,347,459 17.44 10 Wyndham Lane Palm Beach Gardens, FL Richard C. Turner 2,777,400 7.63 4200 Oak Street Palm Beach Gardens, FL Peter Tamayo Jr. 750,000 2.07 Coral Springs, FL All Officers and 9,874,859 27.14 Directors as a Group 3 persons ___________________________ (1) David J. Panaia, an officer and director of the Company, is the beneficial owner of 400,000 shares held in the name of the Panaia Family Trust and 41,500 shares held in the name of Barbara Panaia, wife of David Panaia. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Certain transactions to which the Company is a party and certain matters affecting it have or will result in a material benefit to certain of the directors and executive officers, or may create conflicts of interest, as follows: Linda Bergman was the sole owner of a privately-held business called Amateur Athletes of America. She is also the wife of Gerald V. Bergman, who formerly served as a Director and Chief Financial Officer. On November 23, 1996, the Company issued an aggregate of 500,000 shares for cancellation of debt to Linda Bergman and Gerald Bergman in the amount of $16,333. The Bergmans directed that 460,000 shares be issued directly to Linda Bergman, and that each of their four children be issued 10,000 shares. Mr. Brody Brockman is the son-in-law of Gerald V. Bergman and was an employee of US Amateur Sports Company. 25,000 shares were issued to Mr. Brockman on November 23, 1996 as compensation for sales and shipping services. 37 Mr. Thomas J. Thomas is a Florida attorney who performed legal services for us and also formerly served as the Secretary and a Director. On May 31, 1997, the Company issued 50,000 shares to Mr. Thomas as compensation for his legal services performed prior to that date. On August 12, 1997, the Company extended a promissory note in favor of Stratex Corporation in the amount of $100,000. The loan, which bore interest at the rate of prime plus 6%, was paid in full in May 2001. Derek Panaia, son of David Panaia, is the sole shareholder of Stratex Corporation. On February 6, 1998, the Company issued 5,000 shares to Angela Brockman as compensation for her performing secretarial, receptionist and other services for us. Angela Brockman is the daughter of Gerald V. Bergman and Linda Bergman. On February 6, 1998, the Company issued 5,000 shares to Brody Brockman as compensation for his performing sales and shipping services for us. Brody Brockman is the son-in-law of Gerald Bergman. On February 27, 1998 the Company acquired certain assets of Amateur Athletes of America, Inc. in a tax-free exchange of assets for stock. The Company acquired all rights to the ProCard and ComCard plus certain Internet-based sports equipment exchange concepts in exchange for 1,000,000 shares of Common Stock. A portion of the stock was used for payment of a note held by Amateur Athletes of America. Amateur Athletes of America, Inc. was a private corporation owned by Linda C. Bergman, wife of Gerald V. Bergman, former corporate Chief Financial Officer and former member of the Board of Directors. On February 6, 1998, the Company issued 1,500,000 shares to Axis Enterprises pursuant to an agreement with Axis Enterprises to provide management services for USA Performance Products, Inc. and to provide financial assistance to us. On February 6, 1998, the Company issued an additional 150,000 shares to Thomas J. Thomas as compensation for legal services performed by him prior to that date. On February 6, 1998, the Company issued 327,900 shares to David Panaia (the Company's Chief Executive Officer and a Director) in cancellation of indebtedness in the amount of $6,148. On April 16, 1998, the Company issued 100,000 shares to Bonnie Panaia as compensation for accounting and other services and issued an additional 400,000 shares to her as compensation for her services in connection with the preparation of the infrastructure of the billing and online e-commerce systems. Bonnie Panaia is the daughter of David Panaia, the Chief Executive Officer and a Director. On April 16, 1998, the Company issued 25,000 shares to Doug Panaia as compensation for performing manual labor for us prior to that date. Doug Panaia is the brother of David Panaia, the Chief Executive Officer and a Director. On April 16, 1998, the Company issued 150,000 shares as compensation for engineering services performed by Jack Enterline for the Company prior to that date. Mr. Enterline requested that the shares be issued in the name of his wife, Karen. At the time these services were performed, Mr. Enterline served as one of the Directors. 38 On April 16, 1998, the Company issued 200,000 shares to Gerald V. Bergman (the Chief Financial Officer at that time) in cancellation of indebtedness in the amount of $12,810. On April 16, 1998, the Company issued 200,000 shares to David Panaia (the Chief Executive Officer and a Director) in cancellation of indebtedness in the amount of $12,810. On April 16, 1998, the Company issued an additional 150,000 shares to Thomas J. Thomas as compensation for legal services performed by him prior to that date. On January 22, 1999, the Company issued 60,000 shares to Angela Brockman as compensation for her performing secretarial, receptionist and other services for us. Angela Brockman is the daughter of Gerald Bergman and Linda Bergman. On January 22, 1999, the Company issued 30,000 shares to Brody Brockman as compensation for his performing sales and shipping services. On March 4, 1999, the Company issued an additional 62,000 shares to Axis Enterprises in a privately-negotiated transaction in cancellation of indebtedness to Axis in the amount of $11,780. On May 16, 1999, the Company issued 100,000 shares to Resource Group, NA, Inc. for promotional services performed for us. Thomas DeRita, a member of the Board of Directors at that time, is a shareholder in Resource Group, NA. On May 16, 1999, the Company issued 100,000 shares to Lighthouse Communications Group, LLC for Internet development services. Elling Myklebust, a former director and the former Vice President-Internet Technology, owns Lighthouse Communications Group, LLC. On December 22, 1999, the Company issued 25,000 shares to Elling Myklebust for Internet development services. On December 22, 1999, the Company issued 10,010 shares to Christen Myklebust for Internet development services. Christen Myklebust is the son of Elling Myklebust. On December 22, 1999, the Company issued an additional 1,000 shares to Brodie Brockman for performing sales and shipping services. On January 2, 2000, the Company issued options to the outside legal counsel, Stanley F. Freedman and Sharon M. Link, to purchase up to 25,000 shares each of the Common Stock at an initial exercise price of $1.00 per share as additional compensation for performing legal services in connection with the preparation and filing of the Exchange Act reports for the years 1996, 1997, 1998 and 1999. On March 16, 2000, the Company issued an additional 10,000 shares to Resource Group, NA, Inc. for promotional services performed for us. Thomas DeRita, a former member of the Board of Directors, is a shareholder in Resource Group, NA, Inc. On August 31, 2000, the Company issued an additional 100,000 shares to Resource Group, N.A., Inc. for promotional services performed for us. 39 On August 31, 2000, the Company issued 100,000 shares to Charles Hansen for performing services as the President. On September 20, 2000, the Company issued 200,000 shares to Derek Panaia for consulting services. Derek Panaia is the son of David Panaia, the Chief Executive Officer and a Director. On September 25, 2000, the Company issued an additional 200,000 shares to Derek Panaia. On May 10, 2001, the Company issued 1,286,359 shares to David Panaia in cancellation of indebtedness in the amount of $437,362. On May 10, 2001, the Company issued 10,000 shares to Hanne-Mette Wilson for clerical services rendered to the company. Hanne-Mette Wilson is the wife of Robert Wilson, the President and a Director. On May 10, 2001, the Company issued an additional 20,843 shares to Chris Myklebust for Internet development services rendered. On May 24, 2001, the Company issued an additional 100,000 shares to Resource Group, N.A., Inc. for promotional services rendered. On June 4, 2001, the Company issued 5,000 shares to Thomas DeRita for property and equipment. On June 4, 2001, the Company issued 100,000 shares to Robert Wilson for performing services as the President. On June 4, 2001, the Company issued 100,000 shares to Richard Turner for performing services as the Treasurer and Chief Financial Officer. On August 22, 2001, the Company issued 111,000 shares to Bonnie Crum for consulting services. Bonnie Crum is the daughter of David Panaia, the Chief Executive Officer and a Director. On September 27, 2001, the Company issued 51,020 shares to Robert Wilson as a commission for closing the companies contract with Impact Imaging Inc. On September 28, 2001, the Company issued 10,000 shares to Richard Turner for performing services as the Treasurer and Chief Financial Officer. On October 25, 2001, the Company issued 25,000 shares to Hanne-Mette Wilson for clerical services rendered to the company. On October 25, 2001, the Company issued 150,000 shares to Robert Wilson for performing services as the President. On October 25, 2001, the Company issued 150,000 shares to Richard Turner for performing services as the Treasurer and Chief Financial Officer. On October 25, 2001, the Company issued 10,000 shares to Andrew Panaia for performing services as manager of the USA Performance Products subsidiary. 40 On December 6, 2001, the Company issued 10,000 shares to Patricia Redenius for performing internet design services for the company. Patricia Redenius was appointed Vice-President of the company during May 2002. On January 23, 2002, the Company issued 25,000 shares to Richard Turner for performing services as the Treasurer and Chief Financial Officer. On January 23, 2002, the Company issued 10,000 shares to Hanne-Mette Wilson for clerical services rendered to the company. On January 23, 2002, the Company issued 25,000 shares to Robert Wilson for performing services as the President. On February 4, 2002, the Company issued 25,000 shares to Richard Turner for performing services as the Treasurer and Chief Financial Officer. On February 4, 2002, the Company issued 12,000 shares to Hanne-Mette Wilson for clerical services rendered to the company. On February 4, 2002, the Company issued 25,000 shares to Robert Wilson for performing services as the President. On March 21, 2002, the Company issued 29,000 shares to Richard Turner for performing services as the Treasurer and Chief Financial Officer. On March 21, 2002, the Company issued 21,000 shares to Hanne-Mette Wilson for clerical services rendered to the company. On March 21, 2002, the Company issued 34,000 shares to Robert Wilson for performing services as the President. On April 25, 2002, the Company issued 31,000 shares to Richard Turner for performing services as the Treasurer and Chief Financial Officer. On April 25, 2002, the Company issued 22,000 shares to Hanne-Mette Wilson for clerical services rendered to the company. On April 25, 2002, the Company issued 36,000 shares to Robert Wilson for performing services as the President. On May 29, 2002, the Company issued 100,000 shares to Patricia Redenius for performing services as Vice-President of the company. On June 7, 2002, the Company issued 56,000 shares to Richard Turner for performing services as the Treasurer and Chief Financial Officer. On June 7, 2002, the Company issued 65,000 shares to Robert Wilson for performing services as the President. On July 1, 2002, the Company issued 750,000 shares to Peter Tamayo, President and Chief Technology Officer for research and development on MyPhotoZip. On July 1, 2002, the Company issued 1,250,000 shares to Internet Security Solutions Inc. for 5 year licenses to use Virtual Protect and Pandora security software. Peter Tamayo, is a shareholder in Internet Security Solutions Inc. 41 On July 8, 2002, the Company issued 49,000 shares to Richard Turner for performing services as the Treasurer and Chief Financial Officer. On August 1, 2002, the Company issued 54,000 shares to Richard Turner for performing services as the Treasurer and Chief Financial Officer. On September 18, 2002, the Company issued 63,000 shares to Richard Turner for performing services as the Treasurer and Chief Financial Officer. On October 22, 2002, the Company issued 104,000 shares to Richard Turner for performing services as the Treasurer and Chief Financial Officer. On December 4, 2002, the Company issued 278,000 shares to Richard Turner for performing services as the Treasurer and Chief Financial Officer. On January 16, 2003, the Company issued 1,470,600 shares to David Panaia in cancellation of indebtedness in the amount of $14,706. On January 16, 2003, the Company issued 980,400 shares to Richard Turner in cancellation of indebtedness in the amount of $9,804. On January 16, 2003, the Company issued 139,000 shares to Richard Turner for performing services as the Treasurer and Chief Financial Officer. On February 10, 2003, the Company issued 227,000 shares to Richard Turner for performing services as the Treasurer and Chief Financial Officer. On February 10, 2003, the Company issued 112,000 shares to Patricia Redenius for performing services as an officer or eCom eCom.com. On April 9, 2003, the Company issued 557,000 shares to Richard Turner for performing services as the Treasurer and Chief Financial Officer. On April 9, 2003, the Company issued 600,000 shares to David Panaia in cancellation of indebtedness in the amount of $5,400. Except as described above, no director, officer or principal security holder of eCom has or has had a direct or indirect material interest in any transaction to which the Company is or was a party. The Company believes that the terms of each of the transactions described above were no less favorable to us than could have been obtained from third parties. However, it should be noted that all restricted stock issuances to affiliates are made at a 50% discount from the then market value of the Common Stock. In addition, in the future the Company will not enter into additional transactions with directors, officers or principal shareholders unless the terms thereof are no less favorable to us than could be obtained from third parties. 42 PART IV ITEM 13. CONTROLS AND PROCEDURES Evaluation of the Company's Disclosure Controls and Internal Controls: Within the 90 days prior to the date of this Annual Report on Form 10-K,the Company evaluated the effectiveness of the design and operation of its 'disclosure controls and procedures'("Disclosure Controls"). This 'evaluation' ("Controls Evaluation")was done under the supervision and with the participation of management, including the Chief Executive Officer ("CEO")and Chief Financial Officer ("CFO"). As a result of this review, the Company adopted guidelines concerning disclosure controls and the establishment of a disclosure control committee made up of senior management. Limitations on the Effectiveness of Controls: The Company's management, including the CEO and CFO, does not expect that its Disclosure Controls or its 'internal controls and procedures for financial reporting' ("Internal Controls")will prevent all error and all fraud. A control system, no matter how well conceived and managed, can provide only reasonable assurance that the objectives of the control system are met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Conclusions: Based upon the Controls Evaluation, the CEO and CFO have concluded that, subject to the limitations noted above, the Disclosure Controls are effective to timely alert management to material information relating to the Company during the period when its periodic reports are being prepared. In accordance with SEC requirements, the CEO and CFO note that, since the date of the Controls Evaluation to the date of this Annual Report, there have been no significant changes in Internal Controls or in other factors that could significantly affect Internal Controls, including any corrective actions with regard to significant deficiencies and material weaknesses. 43 ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K (a) Index to financial statements and financial statement schedules The audited balance sheets of the Company as of May 31, 2003 and 2002 and the related statements of operations, stockholders' equity and cash flows for the years ended May 31, 2003 and 2002 appear in sequentially numbered pages F-1 through F-19. The page numbers for the financial statement categories are as follows: Page Description F-1 Report of Independent Auditors - May 31, 2003 and 2002 F-2 Balance Sheets as of May 31, 2003 and 2002 F-3 Statements of Operations for the Years Ended May 31, 2003 and 2002 F-4 Statement of Shareholders' Deficit for the Years Ended May 31, 2003 and 2002 F-5 Statements of Cash Flows for the Years Ended May 31, 2003 and 2002 F-7 Notes to Financial Statements (b) 8-K Reports On June 13, 2000 a Form 8-K was filed with the Securities and Exchange Commission reporting in Item 2, "Acquisition or Disposition of Assets", that the Company had acquired all of the outstanding shares of Star Dot Marketing, Inc. on May 31, 2000. On May 31, 2001 a Form 8-K was filed with the Securities and Exchange Commission reporting in Item 2, "Acquisition or Disposition of Assets", that on May 11, 2001 US Amateur Sports Company entered into an Agreement of Sale of the 1-800-PAINTBALL division with Eugenio Postorivo, Jr., individually. On June 7, 2001 a Form 8-K was filed with the Securities and Exchange Commission reporting in Item 2, "Acquisition or Disposition of Assets", that on May 31, 2001 eCom eCom.com, Inc. entered into a Stock Purchase Agreement with Brian Delaporta, individually, to acquire all of the outstanding stock of Star Dot Marketing, Inc. Star Dot Marketing, Inc. was a wholly owned subsidiary of eCom eCom.com, Inc. (the "Stockholder") at the time of sale. Brian Delaporta is to become the President of Star Dot Marketing, Inc. (c) Exhibits: 3.1 Articles of Incorporation (1) 3.2 By-laws (1) 10.1 Agreement for acquisition of assets of Performance Paintball Products, Inc. (1) 10.2 Agreement of acquisition of rights to All American Bowl (2) 10.3 Personal services agreement with All American Bowl Executive Director (2) 10.4 Promissory Note to Stratex Corporation dated August 12, 1997 (3) 10.5 Marketing and Management Agreement between Axis Enterprises, Ltd. and Registrant dated January 10, 1998 (3) 10.6 Agreement for acquisition of assets of Amateur Athletes of America, Inc. (3) 10.7 Lease Agreement between Ryco Properties, Inc. and Registrant dated May 4, 1998 (3) 44 10.8 Investment Agreement between Swartz Private Capital LLC and the Registrant dated May 13, 1999 (4) 10.9 Registration Rights Agreement between Swartz Private Capital LLC and the Registrant dated May 13, 1999 (4) 10.10 Side Agreement (4) 10.11 Amended and Restated Investment Agreement between Swartz Private Capital LLC and the Registrant dated July 1999 (5) 10.12 Memorandum dated September 13, 1999 from Swartz Private Capital LLC extending date to file registration statement (5) 10.13 First Stock Incentive Plan (5) 10.14 Occupancy Agreement between Chimney Rock Services, LLC and Registrant dated September 15, 1999 (6) 10.15 License Agreement between iTool.com and Registrant dated December 20, 1999 (6) 10.16 Stock Exchange Agreement between the shareholders of Star Dot Marketing, Inc. and Registrant dated January 21, 2000 (7) 10.17 Service Agreement between eWebPEO.com, Inc. and Registrant dated March 25, 2000 (6) 10.18 Consulting and Compensation Agreement between eWebPEO.com, Inc. and Registrant dated April 16, 2000 (6) 10.19 Agreement of Sale between US Amateur Sports Company and Eugenio Postorivo Jr., Individually, dated May 11, 2001 (8) 10.20 Stock Purchase Agreement between the Company and Brian Delaporta, Individually, dated May 31, 2001 (9) 10.21 Addendum to Advance Balance Acknowledgement dated May 31, 2001 (9) 10.22 Strategic Marketing and Sales Agreement between BIFS Technologies Corporation and the Registrant dated March 19, 2001 (10) 10.23 Operating Agreement for ZyndeCom, Inc. dated August 20, 2001 (10) 11 Statement of Computation of Earnings per Share 21 Subsidiaries of the Company 27 Financial Data Schedule _______________________________ (1)Incorporated by reference to the Company's original Registration Statement on Form 10 SB-1, Registration 33-96638-A, filed on September 6, 1995. (2)Incorporated by reference to Form 10-KSB for the year ended May 31, 1997. (3)Incorporated by reference to Form 10-KSB for the year ended May 31, 1998. (4)Incorporated by reference to Form 8-K filed with the Commission on May 26, 1999. (5)Incorporated by reference to Form 10-KSB for the year ended May 31, 1999. (6)Incorporated by reference to Form 10-KSB for the year ended May 31, 2000. (7)Incorporated by reference to Form 8-K filed with the Commission on January 21, 2000. (8)Incorporated by reference to Form 8-K filed with the Commission on May 31, 2001. (9)Incorporated by reference to Form 8-K filed with the Commission on June 7, 2001. (10)Incorporated by reference to Form 10-KSB for the year ended May 31, 2001. (11)Statement of Computation of Earnings per Share May 31, 2003 45 eCom eCom.com, INC. STATEMENT OF COMPUTATION OF EARNINGS PER SHARE Calculation of Numerator: Calculation of Denominator: Net loss (770,790) Weighted average common shares Adjustment 0 issued and outstanding 32,004,625 -------- Potentially dilutive securities 0 Net Loss (770,790) ---------- ========= Weighted average shares outstanding 32,004,625 ========== Subsidiaries of the Company eCom eCom.com, Inc. SUBSIDIARIES as of May 31, 2003 State of Name Under Which Subsidiary Name and Address Incorporation Business is Conducted - --------------------------- ------------- --------------------- USA Sportsnet Company Florida USA Sportsnet Company (formerly)US Amateur Sports Company the name was changed on March 2003 USA Performance Products, Inc. Florida USA Performance Products Financial Data Schedule This schedule contains summary financial information extracted from the balance sheets and statements of operations found on pages F2 and F3 of the Company's Form 10-KSB for the year ended May 31, 2003, and is qualified in its entirety by reference to such financial statements. ADDITIONAL INFORMATION Corporate Headquarters 2700 PGA Boulevard, Suite 103, Palm Beach Gardens, Florida 33410 Telephone Number: (561) 622-4395; Fax Number: (561) 624-0202 Internet Address - http://www.ecomecom.net E-mail Address - info@ecomecom.net Independent Public Accountants Wieseneck, Andres & Company, P.A. Certified Public Accountants 772 U.S. Highway 1, Suite 200 North Palm Beach, Florida 33408 Transfer Agent Florida Atlantic Stock Transfer, Inc. 7130 Nob Hill Road Tamarac, Florida 33321 46 Exhibits to Form 10-KSB will be provided to shareholders of the Registrant upon written request addressed to eCom eCom.com, Inc., 2700 PGA Boulevard, Suite 103, Palm Beach Gardens, Florida 33410. Any exhibits furnished are subject to a reasonable photocopying charge. The Securities and Exchange Commission has not approved or disapproved of this Form 10-KSB and Annual Report to Shareholders nor has it passed upon its accuracy or adequacy. 47 This schedule contains summary financial information extracted from the balance sheets and statements of operations found on pages 2 and 3 of the Company's Form 10-KSB for the year ended May 31, 2003, and is qualified in its entirety by reference to such financial statements. {PERIOD-TYPE} 12-MOS {FISCAL-YEAR-END} MAY-31-2003 {PERIOD-END} MAY-31-2003 {CASH} 111 {SECURITIES} 0 {RECEIVABLES} 347 {ALLOWANCES} 0 {INVENTORY} 147,389 {CURRENT-ASSETS} 151,471 {PPE} 311,580 {DEPRECIATION} 264,288 {TOTAL-ASSETS} 283,124 {CURRENT-LIABILITIES} 875,569 {BONDS} 0 {PREFERRED-MANDATORY} 0 {PREFERRED} 0 {COMMON} 3,639 {OTHER-SE} (596,084) {TOTAL-LIABILITY-AND-EQUITY} 283,124 {SALES} 148,672 {TOTAL-REVENUES} 148,672 {CGS} 117,372 {TOTAL-COSTS} 650,886 {OTHER-EXPENSES} 0 {LOSS-PROVISION} 0 {INTEREST-EXPENSE} 14,095 {INCOME-PRETAX} (770,790) {INCOME-TAX} 0 {INCOME-CONTINUING} (770,790) {DISCONTINUED} 0 {EXTRAORDINARY} (254,480) {CHANGES} 0 {NET-INCOME} (770,790) {EPS-BASIC} (.02) {EPS-DILUTED} (.02) 48 SIGNATURE In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized. eCom eCom.com, Inc. September 26, 2003 By: /s/ David J. Panaia David J. Panaia, Chief Executive Officer September 26, 2003 By: /s/ Richard C. Turner Richard C. Turner, Chief Financial Officer 49 CERTIFICATION REQUIRED UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, David J. Panaia, certify that: 1. I have reviewed this annual report on Form 10-K of eCom eCom.com Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls. 6. The registrant's other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: September 26, 2003 /s/ David J. Panaia - ----------------------- David J. Panaia Chief Executive Officer CERTIFICATION REQUIRED UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Richard C. Turner, certify that: 1. I have reviewed this annual report on Form 10-K of eCom eCom.com Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls. 6. The registrant's other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: September 26, 2003 /s/ Richard C. Turner - --------------------------- Richard C. Turner Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----