10QSB 1 ecec0204.txt ECOM ECOM FORM 10QSB FEB 29 2004 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Form 10-QSB QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended February 29, 2004 Commission File Number 33-96638-A eCom eCom.com, Inc. ----------------------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) Florida 65-0538051 ------------------------- -------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 8125 Monetary Dr., Suite H5 Riviera Beach, Florida 33404 ----------------------------------------------------------------------------- (Address of principal executive offices) (561) 622-4395 ----------------------------------------------------------------------------- (Registrant's telephone number, including area code) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] As of February 29, 2004 the issuer had 49,955,112 shares of common stock, $.0001 Par Value, outstanding. Transitional Small Business Disclosure format: Yes [ ] No [ X ] eCom eCom.com, Inc. Form 10-QSB February 29, 2004 INDEX PAGE NO. PART I FINANCIAL INFORMATION ITEM 1 FINANCIAL STATEMENTS Independent Accountant's Report 3 Consolidated Balance Sheets: February 29, 2004 and May 31, 2003 (Unaudited) 4 Consolidated Statements of Operations: Nine Months Ended February 29, 2004 and February 28, 2003 (Unaudited) 5 Consolidated Statements of Operations: Three Months Ended February 29, 2004 and February 28, 2003 (Unaudited) 6 Consolidated Statements of Shareholders' Deficit: Years Ended May 31, 2003 and 2002 and the Nine Months Ended February 29, 2004 (Unaudited) 7 Consolidated Statements of Cash Flows: Nine Months Ended February 29, 2004 and 2003 (Unaudited) 8 Notes to Consolidated Financial Statements 10 ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 21 ITEM 3 CONTROLS AND PROCEDURES 29 PART II OTHER INFORMATION ITEMS 1-6 30 SIGNATURES AND CERTIFICATIONS 33 Exhibit 31.1 Certification required under Section 302 of 33 the Sarbanes-Oxley Act of 2002 by the CE0 Exhibit 31.2 Certification required under Section 302 of 34 the Sarbanes-Oxley Act of 2002 by the CFO Exhibit 32 Certification of CEO and CFO Pursuant to 36 Section 906 of the Sarbanes-Oxley Act 2 Wieseneck, Andres & Company, P.A. Certified Public Accountants 772 U. S. Highway 1, Suite 100 North Palm Beach, Florida 33408 (561) 626-0400 Thomas B. Andres, C.P.A.*, C.V.A. FAX (561) 626-3453 Paul M. Wieseneck, C.P.A. *Regulated by the State of Florida Independent Accountant's Report To the Board of Directors and Stockholders eCom eCom.com, Inc. We have reviewed the accompanying Balance Sheets of eCom eCom.com, Inc. as of February 29, 2004 and May 31, 2003, and the related consolidated statements of operations, for the three-month periods and the nine-month periods ended February 29, 2004 and February 28, 2003, the consolidated statement of stockholders' deficit from May 31, 2002 through February 29, 2004, and the consolidated statement of cash flows for the nine-month periods ended February 29, 2004 and February 28, 2003. These financial statements are the responsibility of the company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with U.S. generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements for them to be in conformity with U.S. generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in the notes to the financial statements, the Company's current liabilities exceed the current assets by $510,739 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 described in the notes. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Wieseneck, Andres & Company, P.A. April 14, 2004 3 eCOM eCOM.COM, INC CONSOLIDATED BALANCE SHEETS (Unaudited) February 29, 2004 May 31, 2003 ----------------- ------------ ASSETS Current Assets Cash and cash equivalents $ 1,819 $ 111 Accounts receivable other 92 347 Inventories 189,834 147,389 Prepaid expenses 104,044 3,624 ------------ ------------ Total Current Assets 295,789 151,471 ------------ ------------ Property and Equipment, net 25,572 47,292 ------------ ------------ Other Assets Intangible assets, net 63,974 74,978 Other assets 8,757 9,383 ------------ ------------ Total Other Assets 72,731 84,361 ------------ ------------ Total Assets $ 394,092 $ 283,124 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $ 295,899 $ 270,585 Accrued expenses 45,500 2,694 Other Current Liabilities 457 1,402 Current portion of long-term debt 451,278 600,888 Interest accrued on current portion 13,394 - ------------ ------------ Total Current Liabilities 806,528 875,569 Notes Payable, Net of Current Portion - - ------------ ------------ Total Liabilities 806,528 875,569 ------------ ------------ Stockholders' Equity Common stock, $.0001 par value, 50 million shares authorized, 49,955,112 and 36,393,112 shares issued and outstanding 4,995 3,639 Paid-in capital 6,579,537 6,048,622 Accumulated deficit (6,996,968) (6,644,706) Treasury stock - - ------------ ------------ Total Stockholders' Deficit (412,436) (592,445) ------------ ------------ Total Liabilities and Stockholders' Equity $ 394,092 $ 283,124 ============ ============ See accompanying summary of accounting policies, notes to financial statements and independent accountants' review report. 4 ECOM ECOM.COM, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) For the Nine Months Ended February 29, 2004 February 28, 2003 ______________ _______________ Revenues Net Sales $ 47,806 $ 113,329 Cost of Sales (47,799) (90,466) ______________ _______________ Gross Profit 7 22,863 ______________ _______________ Other Operating Expenses Sales and marketing 3,126 23,148 Product development 14,625 14,900 General and administrative 332,337 405,455 Amortization 16,352 15,192 ______________ _______________ Total Operating Expenses 366,440 458,695 ______________ _______________ Loss from Operations (366,433) (435,832) Other Income (Expense) Interest income 4 - Interest expense (30,170) (9,605) Gain on disposal of asset 44,337 (254,480) ______________ _______________ Net Other Expenses (14,171) (264,085) ______________ _______________ Net Loss $ (352,262) (699,917) ============== =============== Net Loss Per Common Share $ (.008) (.023) ============== =============== Weighted Average Shares Outstanding 42,532,642 30,706,907 ============== =============== See accompanying summary of accounting policies, notes to financial statements and independent accountants' review report. 5 ECOM ECOM.COM, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) For the Three Months Ended February 29, 2004 February 28, 2003 _________________ __________________ Revenues Net Sales $ 13,497 $ 42,089 Cost of Sales (14,238) (30,414) ______________ _____________ Gross Profit (741) 11,675 ______________ _____________ Operating Expenses General and administrative 100,711 285,953 Sales and marketing 278 4,262 Product development 4,875 7,578 Amortization 5,560 560 ______________ _____________ Total Operating Expenses 111,424 298,353 ______________ _____________ Loss from Operations (112,165) (286,678) Other Income (Expense) Interest income 4 2 Interest expense (12,171) (1,865) Gain/(Loss) on disposal of asset 43,927 0 ______________ _____________ Net Other Expenses (31,760) (1,863) ______________ _____________ Net Loss $ (80,405) (288,541) ============== ============= Net Loss Per Common Share $ (.002) (.011) ============== ============= Weighted Average Shares Outstanding 49,955,112 33,609,445 ============== ============= See accompanying summary of accounting policies, notes to financial statements and independent accountants' review report. 6 ECOM ECOM.COM, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT FOR THE YEARS ENDED MAY 31, 2003 AND 2002 AND THE NINE MONTHS ENDED FEBRUARY 29, 2004 (Unaudited) Number At Add'l Total of Par Paid In Accum'd Treasury Stockholder Shares Value Capital Deficit Stock Deficit ---------- ------ ---------- ----------- -------- ----------- Balance, May 31, 2001 19,010,836 $1,901 $4,127,083 $(4,391,382)$ - $ (262,398) Issuance of Common Stock 7,728,686 773 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) Issuance of Common Stock 13,562,000 1,356 530,915 - - 532,271 Net Loss - - - (271,856) - (352,262) ---------- ------ ---------- ----------- -------- ----------- Balance, Feb 29, 2004 49,955,112 $4,995 $6,579,537 $(6,996,968)$ - $ (412,436) ========== ====== ========== =========== ======== =========== See accompanying summary of accounting policies, notes to financial statements and independent accountants' review report. 7 eCOM eCOM.COM, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED FEBRUARY 29, 2004 AND FEBRUARY 28, 2003 (Unaudited) February 29, 2004 February 28, 2003 _______________ _______________ Cash Flows From Operating Activities Cash received from customers 47,805 113,329 Interest income 4 0 Cash paid to suppliers and employee (80,977) (269,499) Interest paid (24,773) (9,187) _______________ _______________ Net Cash Flows Used in Operating Activities (57,941) (165,357) _______________ _______________ Cash Flows From Investing Activities Cancellation of security deposits (2,676) 0 Purchase of equipment (1,360) 0 Purchase of intangible assets (3,076) 0 Proceeds received from sale of equipment 500 0 _______________ _______________ Net Cash Flows Provided By (Used In) Investing Activities (6,613) 0 _______________ _______________ Cash Flows From Financing Activities Proceeds from note receivable 0 37,590 Proceeds of loans from stockholders 154,165 182,653 Repayment of loans to stockholders (87,903) (66,520) _______________ _______________ Net Cash Flows Provided By Financing Activities 66,262 153,723 _______________ _______________ Net Decrease in Cash 1,709 (11,634) Cash and Cash Equivalents at Beginning of Period 111 12,803 _______________ _______________ Cash and Cash Equivalents at End of Period 1,819 1,169 =============== =============== Supplemental Disclosures ------------------------ Non-Cash transactions Stock issued for payment of services 215,975 235,985 Stock issued for purchase of intangibles 0 90,000 Stock issued for purchase of prepaid assets 149,898 0 Stock issued for payment of debt 35,214 24,510 See accompanying summary of accounting policies, notes to financial statements and independent accountants' review report. 8 eCOM eCOM.COM, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED FEBRUARY 29, 2003 AND FEBRUARY 28, 2003 (Unaudited) Reconciliation of Net Loss to Net Cash Flows Used in Operating Activities: February 29, 2004 February 28, 2003 _______________ _______________ Net Loss (352,262) (699,917) Add items not requiring outlay of cash: Depreciation and amortization 39,432 48,978 Expenses paid by issuing stock 215,975 165,173 Gain on sale of assets 535 0 Cash was increased by: Decrease in accounts receivable 255 0 Decrease in inventory 0 15,413 Decrease in prepaid expenses 0 150,586 Decrease in other current asset 0 187,000 Increase in accrued interest payable 13,394 0 Increase in accounts payable 25,314 0 Increase in accrued expenses 42,806 0 Cash was decreased by: Increase in accounts receivable 0 (327) Increase in inventory (42,445) 0 Decrease in accrued expenses 0 (1,961) Decrease in other current liabilities (945) 0 _______________ _______________ Net Cash Flows Used In Operating Activities (57,941) (165,357) =============== =============== See accompanying summary of accounting policies, notes to financial statements and independent accountants' review report. 9 ECOM ECOM.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED FEBRUARY 29, 2004 AND FEBRUARY 28, 2003 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 changed its direction to focus on separating its business segments. The goal is to identify at least one target company for each of the Company's ten subsidiaries. The Company will eventually identify an acquisition for itself. This will then bring the total to eleven independently operating companies. 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 Company is in the process of finalizing spin off's for USA SportsNet Company and MyZipSoft, Inc. At the time this report was being prepared neither transaction was completed. For more information please refer to "Subsequent Events" within this report. eCom's subsidiaries are listed below indicating either if agreements have been made or pending, along with the prospective target company. 1. USA Performance Products, Inc. 2. eSecureSoft Corp. 3. USA SportsNet Company* American Capital Holding, Inc. 4. MyZipSoft, Inc. * Freedom 4 Wireless, Inc. 5. USAS Digital, Inc.** Smart Pill Diagnostics, Inc. 6. Pro Card Corp. ** Cornerstone Energy Partners 7. AAB National Company ** 21st Century Exploration Corp. 8. A Classified Ad, Inc. 9. Swap and Shop Corp 10. A Super Deal, Inc. * Agreement ** Pending It is the Company's intention to eventually make available for partnership or spin off all of its ten subsidiaries for the purposes of attracting management and operational staff. The mission is to make each company profitable and to grow on their own, thus returning value to all shareholders. The business segments listed below are in the process of completing the spin- off procedure and indicating the target company that they plan to acquire. 1. USA SportsNet Company, Palm Beach Gardens, Florida Product Line: e-Commerce business. Target Company: American Capital Holdings, Inc. 2. MyZipSoft, Inc., Palm Beach Gardens, Florida Product Line: Development and distribution of software. Target Company: Freedom4Wireless, Inc. See accompanying independent accountants' review report. 10 ECOM ECOM.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED FEBRUARY 29, 2004 AND FEBRUARY 28, 2003 NOTE A - NATURE OF OPERATIONS (CONTINUED) 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. This will be assigned to our eSecureSoft division. The company continues to renegotiate 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. 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 $16,875 as of November 30, 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 $10,125 as of November 30, 2003. 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 was 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. This will be assigned to our eSecureSoft division. On September 18, 2002, the Company issued 25,000 shares of stock as payment towards the purchase of FotoCrazy software. This deposit was recorded as $1,125. 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 assigned to eSecureSoft in the near future. This will be assigned to our eSecureSoft division. See accompanying independent accountants' review report. 11 ECOM ECOM.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED FEBRUARY 29, 2004 AND FEBRUARY 28, 2003 NOTE A - NATURE OF OPERATIONS (CONTINUED) In 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. On November 30, 2003, the Company acquired the Internet URL, PhotoZip.com, for a total cost of $3,076. This asset will be amortized over five years. Amortization related to this assets will begin December 1, 2003. Please refer to "Other Events" for additional information. 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. 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. We 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 is recognized at the time title is transferred which is normally on shipment of the goods. Revenue from the sale of compression products is also recognized at the time the products are shipped or downloaded. 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. See accompanying independent accountants' review report. 12 ECOM ECOM.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED FEBRUARY 29, 2004 AND FEBRUARY 28, 2003 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. Depreciation Property and equipment is recorded at cost and is depreciated over the estimated useful lives of the related assets. Depreciation is computed using the straight-line method. 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. 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. On February 29, 2004, inventory consisted of the following: Finished goods $ 36,883 Work in process 152,951 Raw materials 0 ---------- Total inventory $ 189,834 ========== NOTE D - PREPAID EXPENSES Prepaid expenses consist principally of amounts paid for rent, subscriptions and domain name registrations. See accompanying independent accountants' review report. 13 ECOM ECOM.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED FEBRUARY 29, 2004 AND FEBRUARY 28, 2003 NOTE E - PROPERTY AND EQUIPMENT The following is a summary of property and equipment recorded in the financial statements at cost less depreciation as of February 29, 2004 and May 31, 2003: February 29, 2004 May 31, 2003 ----------------- ------------ Computer hardware $ 151,471 $ 150,111 Computer software 56,308 56,308 Furniture, fixtures and equipment 47,760 47,760 Tools, dies and fixtures 57,401 57,401 ---------------- ------------ Total Cost 312,940 311,580 Accumulated Depreciation 287,369 264,288 ------------ ------------ Total Net Property and Equipment $ 25,571 $ 47,292 ============ ============ Depreciation expense included in the cost of sales for the periods ended are: $ 23,081 $ 45,053 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 NOTE F - 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 $11,110 and $9,430 as of February 29, 2004 and May 31, 2003, 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 $19,688 as of February 29, 2004. 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 $11,812 as of February 29, 2004. On September 18, 2002, the Company issued 25,000 shares of stock as payment towards the purchase of FotoCrazy software. This deposit was recorded as $1,125. See accompanying independent accountants' review report. 14 ECOM ECOM.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED FEBRUARY 29, 2004 AND FEBRUARY 28, 2003 NOTE F - INTANGIBLE ASSETS (CONTINUED) On August 1, 2003, the Company agreed to pay Digital River $2,000 to develop a distribution system for the MyPhotoZip compression software. Accumulated amortization related to this asset is $1,167 as of February 29, 2004. On November 30, 2003, the Company acquired the Internet URL PhotoZip.com for a total cost of $3,706.04. Intangible assets with a finite usefull life aquired after June 30, 2001 are amortized over their useful lives to the company. Intangible assets acquired after June 30, 2001 having a infinite useful life are recovered at their fair value and are not amortized. Management reviews all intangible assets for impairment annually. NOTE G - OTHER ASSETS Other assets consist primarily of security deposits on the lease of office facilities, an employee advance and utility deposits. NOTE H - LONG-TERM DEBT Long-term debt as of February 29, 2004 and May 31, 2003 consisted of: February 29, 2004 May 31, 2003 --------------- ------------ A non-interest bearing, non-collateralized loan from an offshore corporation that is due on demand. A settlement was reached with this corporation and the note was converted to paid-in-capital on January 24, 2004. 0 184,220 Three non-interest bearing, non-collateralized loans from stockholders. The loans are due on demand. 449,153 416,668 ---------- ---------- Total Long-Term Debt 449,153 600,888 Less Current Portion (449,153) (600,888) ---------- ---------- Net Long-term Debt $ 0 $ 0 ========== ========== The long-term loans payable mature as follows: May 31, 2004 449,153 600,888 ---------- ---------- $ 449,153 $ 600,888 ========== ========== See accompanying independent accountants' review report. 15 ECOM ECOM.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED FEBRUARY 29, 2004 AND FEBRUARY 28, 2003 NOTE I - COST OF SALES Included in the cost of sales are the following: February 29, 2004 May 31, 2003 ------------ ------------ Shipping and handling costs $ 815 $ 0 Packaging costs 124 460 ------------ ------------ Total $ 939 $ 460 ============ ============ Shipping income $ 2,405 $ 8,946 ============ ============ NOTE J - 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 expires June 30, 2004. Future minimum lease payments including sales tax as of February 29, 2004 are: Fiscal Years ending: May 31, 2004 $ 5,565 May 31, 2005 1,855 May 31, 2005 0 ------- Total Minimum Lease Payments $ 7,420 Rent expense for the nine-month periods ending February 29, 2004 and February 28 2003 are $42,668 and $57,612 respectively. We are party to lawsuits in the normal course of our business. Litigation can be expensive and disruptive to normal business operations; the results of legal proceedings are difficult to predict. Our dispute with 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 initially settled during the fiscal year ending May 31, 2002. However two matters resurfaced. The first matter concerning National Paintball which had notified us through their attorney that the issuance of stock agreed upon in the settlement was insufficient to cover the settlement. The company is currently trying to determine the circumstances which led to the shortfall. This matter is being negotiated. The second matter is the attorney for Renick Enterprises Inc. had notified us of his contention that the company failed to complete its agreement by the appropriate date. Management felt that the claim was unfounded and that the company met its obligation timely. See accompanying independent accountants' review report. 16 ECOM ECOM.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED FEBRUARY 29, 2004 AND FEBRUARY 28, 2003 NOTE J - COMMITMENTS AND CONTINGENCIES (CONTINUED) The court has ruled in favor of the Company. Please refer to Subsequent Events for more information on this matter. 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 is owed to the complainant. The Company disputes this claim. 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 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 reportedly owed National Paintball as of February 29, 2004 is $59,476. NOTE K - RELATED PARTY TRANSACTIONS On January 10, 1998, the Company's Board of Directors approved an agreement with Axis Enterprises, Ltd., a Bahamian corporation of Nassau, Bahamas, to retain Axis 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 settled the balance of this debt 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 in return for cancellation of $437,362 ($.34 per share) of the debt owed to him. The balance owed to Mr. Panaia at November 30, 2003 was $330,791. 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 February 29, 2004 is $40,000. See accompanying independent accountants' review report. 17 ECOM ECOM.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED FEBRUARY 29, 2004 AND FEBRUARY 28, 2003 NOTE L - BUSINESS SEGMENTS Prior to the Board of Directors decision to spin of its ten subsidiaries the Company's reportable segments were business units that offer different products and services. The Company had two reportable segments: electronic commerce and software. The electronic commerce segment has provided an e-commerce infrastructure to enable small businesses to expand to the Internet. The e- commerce segment focuses on classifieds, auctions and its paintball gun company. The software segment focuses on the design and resale of secure software applications for compression and transmission of large data files. 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 Nine Months Ended: ---------- ---------- ---------- February 29, 2004 ------------------ Revenues $ 45,521 $ 2,285 47,806 Interest expense 496 29,675 30,171 Depreciation 11,531 11,550 23,081 Amortization - 16,352 16,352 Segment loss (43,538) (308,725) (352,262) Segment assets 181,045 213,047 394,092 Electronic Paintball Commerce Totals Nine Months Ended: ---------- -------- ----------- February 28, 2003 ------------------ Revenues $ 103,335 $ 9,994 113,329 Interest expense 270 9,335 9,605 Depreciation 17,359 16,431 33,790 Amortization - 15,192 15,190 Segment loss (200,449) (499,469) (699,917) Segment assets 195,762 117,130 312,892 NOTE M - 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 See accompanying independent accountants' review report. 18 ECOM ECOM.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED FEBRUARY 29, 2004 AND FEBRUARY 28, 2003 current liabilities exceed current assets by $510,739 at February 29, 2004 and $724,098 at May 31, 2003 and that the Company has incurred net operating losses since inception. eCom has been funding operations and software development through product by sales, asset sales, shareholder loans and private sales of company stock. 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 partners or 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 which will end in May 2004. The company continues to manufacture and sell the Viper paintball gun. The Company is currently focusing its efforts on locating a business partner for its USA Performance Products, Inc. to engage in the manufacturing, sales and distribution of a complete line of paintball products. NOTE N - 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: February 29, 2004 -------------- Loss carry forward for tax purposes $ 6,986,224 ============== Deferred tax asset (34%) 2,375,316 Valuation allowance (2,375,316) -------------- Net deferred tax asset - ============== No provision for federal and state income taxes has been recorded because the Company has incurred net operating losses since inception. The Company's net operating loss carry-forward as of November 30, 2003 was approximately $6,906,000. These carry-forwards, which will be available to offset future taxable income, will expire through the year 2023. The Company does not believe that the realization of the related net deferred tax asset meets the criteria required by generally accepted accounting principles and, accordingly, the deferred income tax asset arising from such loss carry forward has been fully reserved. See accompanying independent accountants' review report. 19 ECOM ECOM.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED FEBRUARY 29, 2004 AND FEBRUARY 28, 2003 NOTE O - EFFECTS OF INFLATION To date, inflation has not had a material impact on the Company's consolidated financial results. NOTE P - RECENT ACCOUNTING PRONOUNCEMENTS 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. In April 2002, the FASB issued SFAS No. 145, "Rescission of the FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections"("SFAS No. 145"). SFAS No. 145 eliminates the requirement to classify gains and losses from the extinguishment of indebtedness as extraordinary, requires certain lease modifications to be treated the same as a sale-leaseback transaction, and makes other non-substantive technical corrections to existing pronouncements. SFAS No. 145 is effective for fiscal years beginning after May 15, 2002. SFAS No. 145 was adopted on June 1, 2003 and did not have a material effect on the Company's financial position or results of operations. 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 See accompanying independent accountants' review report. 20 ECOM ECOM.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED FEBRUARY 29, 2004 AND FEBRUARY 28, 2003 NOTE P - RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED) No.142, intangible assets with definite useful lives will be amortized to their estimated 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 $21,911. 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. ECOM ECOM.COM, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION The following discussion should be read in conjunction with the accompanying consolidated financial statements for the nine-month periods ended February 29, 2004 and February 28, 2003 and the Form 10-KSB for the fiscal year ended May 31, 2003. 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 paintball 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. Overview The results of its operations during the nine months ended February 29, 2004 were a reflection of the continued evolution of its new business model. Management has also developed a debt reduction plan which has reduced debt by 69,041 during this period. See accompanying independent accountants' review report. 21 ECOM ECOM.COM, INC. eCom recently changed its direction to focus on locating target companies to partner, merge with or acquire for its ten business segments. USA SportsNet, Inc. and MyZipSoft, Inc. have signed Asset Purchase Agreements and are in the process of acquiring new names as a result. USA SportsNet will be known as American Capital Holdings, Inc. and MyZipSoft will be known as Freedom4Wireless, Inc. This plan was undertaken to allow 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 Company previously developed an e-commerce infrastructure that 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. This business model will be transferred to its subsidiary eSecureSoft. All ten (10) business subsidiaries have been spun off into independent operating public companies. They are described within this section. As previously stated, the company realized that it did not have the proper resources to develop all ten of its business segments in a timely manner. Thus decided to look towards a spin-off or partnership so that it may obtain the necessary outside resources. Also, there were indications that potential business partners desired to be involved with only one of eCom's many business segments. The Company has identified prospective companies which will allow several business segments to grow, expand and become profitable through an acquisition, affiliation or partnership and become of more value to shareholders. There are two firm and three pending prospects to report at this time. However, if and when these spin offs are accomplished, it is the company's intention to make them independent full trading public companies and to use a pro-rata basis to distribute any new shares to current eCOM shareholders. The two business segments that have firm prospects are described below. 1. USA SportsNet Company, Palm Beach Gardens, Florida, has signed an Asset Purchase Agreement with American Capital Holdings, Inc. 2. MyZipSoft, Inc., Palm Beach Gardens, Florida, has signed an Asset Purchase Agreement with Freedom4Wireless, Inc. eCom eCom's subsidiaries which have been spun off are listed below indicating agreements either completed or pending, along with the prospective target company. 1. USA Performance Products, Inc. 2. eSecureSoft Corp. 3. USA SportsNet Company* American Capital Holding, Inc. 4. MyZipSoft, Inc. * Freedom 4 Wireless, Inc. 5. USAS Digital, Inc.** Smart Pill Diagnostics, Inc. 22 ECOM ECOM.COM, INC. 6. Pro Card Corp. ** Cornerstone Energy Partners 7. AAB Company ** 21st Century Exploration Corp. 8. A Classified Ad, Inc. 9. Swap and Shop Corp 10. A Super Deal, Inc. * Agreement ** Pending Shareholders who maintain their shares in ECEC will be entitled to a pro-rata share of each spin-off as it occurs. Meaning you must own ECEC stock on the Date of Payment. The Company wishes to stress that each spin off will have a different Date of Payment. For clarity purposes, the Date of Record which is set first, determines the outstanding shares eligible for the spin-off shares by attaching a "Due Bill" to them (this will be done by the transfer agent.) If shares are transferred or sold before the Date of Payment, the new shares belong to the new owner. It urges all shareholders to be patient as this type of transaction has many steps and takes time. These spin offs will bring additional value to all ECEC shareholders when completed. Not only will each new spin off company be an additional holding for every shareholder but as an additional benefit the Company is applying to the IRS for it to be treated as a tax free distribution. The Company plans to apply for listings on the AMEX as soon as each company can qualify which incidentally requires a minimum stock price of $3.00 per share. As you can see there are many steps that the Company must take, so again, all investors are asked to be patient as the spin off plan was undertaken for all shareholder's benefit. Fractional shares, if any, will be paid for in cash to each shareholder entitled. Over the past several years, two realities have been made clear: 1) investor appetite for technology stocks diminished; and 2) e-commerce spending declined. eCom restructured its business operations to preserve the Company's future in these difficult markets. This transformation continues today. As a result of this focused execution, we believe we have set the stage to propel eCom's future business. The restructuring consists of creating business segments by seeking management and operational partners for each either through a merger or spin-off. About American Capital Holdings, Inc. (formerly USA SportsNet) History. American Capital Holdings, Inc.(ACH) was incorporated in the State of Florida on January 25,1999 as US Amateur Sports Company, a wholly owned subsidiary of eCom eCom.com, Inc.("eCom") which trades on the OTC/Bulletin Board under the symbol 'ECEC.' On March 24, 2003, the Company changed its name to USA SportsNet, Inc. (USASN), and recently changed its name to American Capital Holdings, Inc. in connection with its spin off by eCom and its acquisition of certain assets of a company formerly known as American Capital Holdings, Inc. (now known as ACHI, Inc.) The Company's main office is located at 100 Village Square Crossing, Suite 202, Palm Beach Gardens, Florida 33410, and the telephone number is (561) 622-4395. 23 ECOM ECOM.COM, INC. On December 1, 2003, the Board of Directors of eCom approved the spin-off of USASN. They voted to issue to the shareholders of eCom one share of the Company for every one share of eCom owned as of the record date of January 5, 2004. Fractional shares will be purchased by the Company. No payment was required of the eCom shareholders. Acquisition from American Capital Holdings. After the spin off of the Company was completed, the Company was presented with an opportunity to acquire certain assets of American Capital Holdings, Inc. (now known as, and referred to hereafter as ACHI) On January 12, 2004, the Company entered into an Asset Purchase Agreement with ACHI whereby the Company acquired certain assets of ACHI in return for the issuance of common stock of the Company in an amount equal to 83.3% of the total ownership of the Company. In order to accomplish this transaction, the Company effected a 20 to 1 reverse stock split, which reduced its outstanding stock to 2,497,756 shares, and issued to ACHI 12,457,356 shares. The Company then changed its name to American Capital Holdings, Inc., and ACHI changed its name to ACHI, Inc. In addition, the Company agreed to reserve 35,000,000 of its authorized, but unissued shares, for issuance pursuant to a public offering, this includes an issue of 2,093,351 shares to Spaulding Ventures, LLC, or its shareholders, in replacement of the shares of ACHI issued or to be issued to Spaulding in connection with a prior acquisition of assets by ACHI from Spaulding (see "Acquisition of Spaulding"). The proceeds of the public offering are to be used to acquire additional interests in some of the companies in which the Company currently holds an ownership interest, to provide capital to those companies, and to acquire interests in other businesses of interest to the Company, which have not yet been identified. Assets Acquired from American Capital Holdings. The assets acquired from ACHI consist primarily of approximately $10.8 million of investment interests in ten developing companies (described below), approximately $3.2 million of restricted securities, approximately $233,000 of marketable securities, approximately $100,000 in cash, and proprietary investment programs known as Energy Tax Incentive Preferred Securities ("ETIPS")and Guaranteed Principal Insured Convertible Securities ("GPICS") which ACHI had developed and specifically designed to facilitate investment in oil and gas exploration in the United States, and in developing companies. Acquisition of Spaulding. On December 30, 2003, prior to the Company's acquisition from ACHI, ACHI entered into a letter agreement with Spaulding Ventures, LLC, pursuant to which ACHI agreed to acquire all of Spaulding's assets in return for 2,093,351 shares of ACHI common stock, plus warrants to purchase a total of 209,335 additional shares of ACHI common stock at a purchase price of $6.00 per share. As part of its acquisition from ACHI of the assets ACHI acquired from Spaulding, the Company has agreed to replace the shares and warrants issued by ACHI with shares and warrants of the Company. In order to facilitate the distribution of these securities by Spaulding to its shareholders, the Company intends file a Registration Statement with the Securities and Exchange Commission registering the distribution to Spaulding's shareholders of both the acquisition shares and the shares to be issued upon exercise of the warrants. 24 ECOM ECOM.COM, INC. Assets Acquired from Spaulding. The assets acquired by ACHI from Spaulding, and subsequently acquired by the Company from ACHI, consist primarily of equity ownership positions in ten developing companies including Spaulding. Spaulding Ventures Overview Spaulding Ventures LLC, a Delaware limited liability company (the "Fund"), was a private equity fund that provides early and interim-stage financing to entrepreneurs to launch and develop growth businesses and that provides financing to established young companies as they grow toward maturity. The Fund invests in enterprises with solid disciplines and characteristics that are essential to building strong companies: top flight management; necessary and adequate financing; critical products or services; demand-pull markets; effective strategic planning and alliances; and excellent business, marketing and sales plans. The Fund provides investors with an opportunity to participate in venture financing of a diversified portfolio of start-up and emerging companies with potentially significant operating success and also provides investors with an ability to capitalize on the Fund's affiliation with several existing venture capital and investment banking entities investing in similar sectors. Portfolio Areas of Interest Medical * Healthcare Related Applications and Services Technology * High and Low Technology Fundamental Industries * Software and Hardware Advances * Proprietary and Intellectual Property Content Financial Services * Financial Services Industry * Application Service Providers Fundamental Industries * Petroleum and Energy Related Industry * Other sound industries for investment and diversification About Freedom4Wireless, Inc. (formerly MyZipSoft) History. Freedom4Wireless, Inc.(F4W)was incorporated in the State of Florida on February 23, 2003 as MyZipSoft, Inc., a wholly owned subsidiary of eCom eCom.com, Inc.("eCom") which trades on the OTC/Bulletin Board under the symbol 'ECEC.' On December 12, 2003, the Company changed its name to Freedom4Wireless, Inc. F4W's main office is located at 100 Village Square Crossing, Suite 202, Palm Beach Gardens, Florida 33410, and the telephone number is (561) 622-4395. It also has a branch office at 14 East Washington Strret, Orlando, FL. On December 1, 2003, the Board of Directors of eCom approved the spin-off of MZS. They voted to issue to the shareholders of eCom one share of the Company for every one share of eCom owned as of the record date of February 23, 2004. 25 ECOM ECOM.COM, INC. Fractional shares will be purchased by the Company. No payment was required of the eCom shareholders. An Asset Purchase Agreement was signed on January 22, 2004 between MyZipSoft, Inc. hereinafter "MZS" and Freedom 4 Wireless, Inc. herein after "F4W". Whereas, Pursuant to an Agreement between parties on 11/28/03, MZS was desirous to purchase certain assets of Freedom 4 Wireless, Inc. in order to avail itself of F4W's expertise, background and knowledge of, but not limited to, creative management, spin offs, MESH wireless technology, securities, structuring of joint ventures and acquisitions. Business Description Freedom 4 Wireless (F4W) is a provider of 4th Generation Mobile Broadband Wireless Services and Products. F4W's unique 4G mobile broadband wireless system provides data, video, audio, and voice services to subscribers on the move, at highway speeds. F4W generates revenue from the selling of subscriber services, vertical product sales equipment sales and contracting to deploy turnkey wide area network wireless solutions. F4W is building a national high speed mobile broadband wireless network as well as building tactical networks for Homeland Security and Law Enforcement agencies. F4W's services and products fall into three broad categories. Freedom 4 Emergency Alert Display Services TM, Freedom 4 Mobile Services TM and Freedom 4 Smart Equipment Services TM. F4W's focus is on the public safety market in 2004 and 2005, by in 2006 F4W believes that the demand for mobile broadband services from business customers will begin to generate significant incremental revenue from the network infrastructures that originally were deployed to provide services to the Public Safety Market. Freedom 4 Emergency Alert Display Services TM networks are networks of plasma and LCD displays that provide Emergency Alert System (EAS) and Community Alert System TM (CAS) messaging to the public in times of community crisis and distress. Such services will allow both federal and local governmental authorities to communicate with the public about imminent and immediate events that may require a quick response to save lives or improve public well-being. Built into these displays are 2-way video and voice capability so that an individuals and first responders in a crisis can communicate with emergency organizations. Freedom 4 Mobile Services TM and Freedom 4 Smart Equipment Services TM are offered through a unique mobile broadband wireless network. It is the first affordable mobile broadband wireless system, and it will offer data, voice, and media services. It will be used to provide mobile, broadband, wireless services to the Department of Homeland Service, local governments (police, fire/rescue, code enforcement, permitting, and traffic management), state departments of transportation (to meet intelligent transportation system needs), health care institutions (mobile telemedicine), corporate enterprises, small businesses, and consumers. The vision of Freedom 4 Wireless is to provide broadband wired and wireless network services to enhance the safety and well-being of the public and to enable government agencies to increase their effectiveness and efficiency. F4W 26 ECOM ECOM.COM, INC. will do so through Freedom 4 Emergency Display Services, Mobile Services, and Smart Equipment Services. By 2007, Freedom Zone Networks envisions its initial local and regional service networks merging with one another to become a national network capable of delivering nationally coordinated, but location specific public safety information relevant to the local community and providing government agencies with the mobile broadband wireless communications capability that they so badly need. In conclusion, the Company cancelled almost all of its existing partnerships and teaming agreements. The Company's reengineering dictated that time be directed towards implementing the new business strategy. As discussed below, the current operating results reflect this temporary cessation of revenues. However, we believe that the potential revenue and profit to be realized from our focus on the spin off plan will confirm that the current lull in revenue generation is a minor inconvenience. Results of Operations Comparison of the nine months ended February 29, 2004 with the nine months ended Febuary 28, 2003. Revenue for the nine-month period ended February 29, 2004 was $47,806 compared to $113,329 of revenue recorded during the same period of the prior year. Current year revenues were recorded from sales of the Viper M1 paintball marker and accessories and sales of MyPhotoZip (TM). Revenue has declined as management increases it efforts to the successful completion of the spin-offs. Gross profit decreased from $22,863 in the prior year period to $7 in the current nine-month period. Gross profit has been reduced by $23,081 of depreciation expenses in the current nine-month period. Depreciation expense amounted to 48% of revenue in the current year and only 30% of revenue in the prior year. The company continues to make improvements in cutting its operating costs. Cost reduction was achieved in all major expense categories. Sales and marketing expense dropped from $23,148 in the nine months ended February 29, 2004 to $3,126 in the current nine-month period. Product development expenses declined from $14,900 in the prior year period to $14,625 in the current nine month period. General and administrative costs dropped from $405,455 in prior year to $332,337 in the current nine month period. Most of this cost savings was generated from a reduction in personnel and overhead. Amortization expense increased from $15,192 to $16,352 as a result of increases in intangible assets. During the current nine month period, the company began amortizing the development costs associated with allowing Digital River to distribute MyPhotoZip (TM). The company incurred net interest expense of $30,170 in the current nine month period compared to a net interest expense of $9,605 in the prior year nine month period. This was primarily due to the increased need to borrow funds to finance current operations. 27 ECOM ECOM.COM, INC. Our operations for the nine months ended February 29, 2004 resulted in a net loss of $352,262, a $347,655 improvement over the net loss of $699,917 recorded during the nine months ended February 28, 2003. Liquidity and Capital Resources As of February 29, 2004, current assets totaled $295,789 compared to $151,471 at the end of the prior fiscal year. Of the $144,318 increase in total current assets, inventory accounted for $42,445 of the increase and prepaid assets accounted for $100,420. The investment in prepaid assets will be used for future consulting related to our evolving business model. Accounts Payable increased $25,314 to $295,899 during the current nine months. This increase in accounts payable helped fund the operating loss of the company. Current liabilities decreased from $875,569 at the end of the prior fiscal year to $806,528 at the end of the current quarter, a decrease of $69,041. Net cash used in operating activities was $57,941 during the current nine month period compared to $165,357 during the same period of the prior year. The principal use of cash in both periods was to fund our net loss from operations. The issuance of stock contributed $251,189 towards our operating deficit during the current nine-month period. Financing activities provided net cash of $66,262 during the first nine months of 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. 28 ECOM ECOM.COM, INC. ITEM 3. CONTROLS AND PROCEDURES Evaluation of the Company's Disclosure Controls and Internal Controls: Within the 90 days prior to the date of this Quarterly Report on Form 10-QSB, 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 Quarterly 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. 29 ECOM ECOM.COM, INC. PART II. OTHER INFORMATION ITEM 1. Legal Proceedings. Our dispute with Renick Enterprises, Inc. has been favorably settled. The matter concerning National Paintball in which they notified us through their attorney that the issuance of stock agreed upon in the settlement was insufficient to cover the settlement. This matter was brought before the courts by Renick and the judge ruled in favor of the Company. 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 $69,373.36 as of May 31, 2001. As part of the SB-2 dated August 8, 2002, stock was registered to pay-off this debt. As of February 28, 2003 all stock that had previously been held in an Attorney escrow account, had been sold and transferred to National Paintball. The balance owed National Paintball as of February 29, 2004 is 59,475.83. The Company is in the process of reaching a settlement with National Paintball, Inc. ITEM 2. Changes in Securities. None ITEM 3. Defaults Upon Senior Securities. None ITEM 4. Submission of Matters to a Vote of Security Holders. None ITEM 5. Other Events. (Subsequent Events) Board of Directors Votes On March 25, 2004 a motion was made and passed to appoint Barney A. Richmond to the office of President of eCom eCom.com, Inc. On March 2, 2004 a motion was made and passed to spin off all of the remaining subsidiaries of eCom, as individual public corporations and take whatever action necessary to complete this process including acquisitions or mergers. This includes; USSAP, eSecureSoft, USAS Digital, ProCard, AAB National, A Classified Ad, A Super Deal and Swap & Shop. On January 20, 2004 a motion was made and passed to offer Warrants for 6,000,000 shares of eCom common stock to ACH for an exercise price of fifty cents ($.50) per share. The offer period is for one year ending January 20, 2005. 30 ECOM ECOM.COM, INC. On January 12, 2004, the Board of Directors of USA SportsNet Company (USASN) approved the following resolutions: A motion was made and passed agreeing to the terms and conditions of the Asset Agreement between USASN and American Capital Holdings, Inc. (ACH) regarding the acquisition of certain assets of ACH. In addition the Board of Directors agrees to change the company name to American Capital Holdings, Inc. A motion was made and passed agreeing to a reverse split of 20 to 1 of the final outstanding shares of USA SportsNet, Inc. of 49,955,112. The Company will purchase all fractional shares at market price. It also agrees that the Date of Record for USASN shareholder ownership was January 5, 2004 for the spin off. A motion was made and passed to appoint Barney Richmond to the Board of Directors and President and Richard Turner to the Board of Directors and Treasurer. David J. Panaia is a Director and Secretary, Harry Timmons is a Director and Matt Salmon is a Director. On December 24, 2003 the Board of Directors of eCom eCom.com amended the Articles of Incorporation. Article Four now was changed to increase the authorized number of shares of the corporation from fifty million shares to two hundred million shares. On December 1, 2003, the Board of Directors of eCom approved the spin-off of ACH and MZS. They voted to issue to the shareholders of eCom one share of the Company for every one share of eCom owned as of the record date of January 5, 2004. Fractional shares will be purchased by the Company. No payment was required of the eCom shareholders. The Board of Directors of eCom has passed the following resolution: Pursuant to the Advisory Board's Report of October 4, 2003, eCom will spin-off its subsidiary MyZipSoft, Inc. The Board views this spin-off in the best interest of its shareholders and it complies with SEC Staff Legal Bulletin No. 4. Further, it voted to issue one share of the spin-off for every share of eCom owned as of the record date which will be announced. On May 15, 2002 a settlement was reached with Renick Enterprises, Inc. As part of the settlement USAPP received cash, notes receivable, inventory, and cancellation of accounts payable. USA Performance products gave up raw material located at Renick. At the time of this filing the court ruled in favor of the Company. The judge hearing the case verbally ruled that the grounds for the claim were insufficient and dismissed the action. The Company has not received the official court paperwork. The Company is also considering further legal action against the plaintiff to recover its legal costs to defend this case. The company has replaced its attorney with Attorney Gerald Gritter of Boca Raton, Fl and Attorney James Volpi of Riviera Beach, FL. 31 ECOM ECOM.COM, INC. The Company has decided to relocate its executive offices from 2700 PGA Blvd., Palm Beach Gardens, FL. The Company will use both its facility at 8125 Monetary Drive, Riviera Beach, FL and 100 Village Square Crossing, Palm Beach Gardens, FL. The company was notified that its lead market maker, Equitrade Securities Inc. of Lake Forest CA was shutting down its operations. The company is presently looking for a replacement, however there are currently over 18 broker/dealers making markets in our stock. The company signed an agreement with Digital River to provide e-marketing services for on-line sales of all of its software products. Results thus far have been minimal. A software partner is being sought to assist in this portion of the Company. ITEM 6. Exhibits and Reports on Form 8-K. (a) Exhibits: Exhibit 31.1 Certification required under Section 302 of the Sarbanes-Oxley Act of 2002 by the CE0 on page 33 Exhibit 31.2 Certification required under Section 302 of the Sarbanes-Oxley Act of 2002 by the CFO on page 34 Exhibit 32 Certification of CEO and CFO Pursuant to Section 906 of the Sarbanes-Oxley Act on page 36 (b) Reports on Form 8-K: Form 8-K filed on March 3, 2004 * regarding The Board of Directors approving the spin off of eCom eCom.com's (ECEC) remaining subsidiary companies as separate publicly owned entities. Form 8-K filed on March 31, 2004 ** regarding the March 29, 2004 appointment of Barney A. Richmond as President of eCom eCom.com, Inc. * Incorporated by reference to Registrant's Form 8-K filed on March 2, 2004 ** Incorporated by refernece to Registrant's Form 8-K filed on March 31, 2004 32 ECOM ECOM.COM, INC. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunder duly authorized. eCom eCom.com, Inc. April 14, 2004 By: /s/ David J. Panaia David J. Panaia, Chief Executive Officer April 14, 2004 By: /s/ Barney A. Richmond Barney A. Richmond President April 14, 2004 By: /s/ Richard C. Turner Richard C. Turner, Chief Financial Officer Exhibit 31.1 CERTIFICATION REQUIRED UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, David J. Panaia, certify that: 1. I have reviewed this quarterly report on Form 10-Q of eCom eCom.com Inc.; 2. Based on my knowledge, this quarterly 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 quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly 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 quarterly 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 quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about theeffectiveness 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 quarterly 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: April 14, 2004 /s/ David J. Panaia -------------------------- David J. Panaia Chief Executive Officer Exhibit 31.2 CERTIFICATION REQUIRED UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Richard C. Turner, certify that: 1. I have reviewed this quarterly report on Form 10-Q of eCom eCom.com Inc.; 2. Based on my knowledge, this quarterly 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 quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly 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 quarterly 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 quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about theeffectiveness 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 quarterly 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: April 14, 2004 /s/ Richard C. Turner --------------------------- Richard C. Turner Chief Financial Officer 35 Exhibit 32 CERTIFICATIONS OF CEO AND CFO PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. SECTION 1350) In connection with the Quarterly Report of eCom eCom.com Inc., a Florida corporation (the "Company"), on Form 10-QSB for the period ending February 29, 2004, as filed with the Securities and Exchange Commission (the "Report"), David J. Panaia, Chief Executive Officer of the Company and Richard C. Turner, Chief Financial Officer of the Company, respectively, do each hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350), that to his knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ David J. Panaia David J. Panaia Chief Executive Officer April 14, 2004 /s/ Barney A. Richmond Barney A. Richmond President April 14, 2004 /s/ Richard C. Turner Richard C. Turner Chief Financial Officer April 14, 2004 [A signed original of this written statement required by Section 906 has been provided to eCom eCom.com Inc. and will be retained by eCom eCom.com Inc. and furnished to the Securities and Exchange Commission or its staff upon request.] Exhibits to Form 10-QSB will be provided to shareholders of the Registrant upon written request addressed to eCom eCom.com, Inc., Post Office Box 32044, Palm Beach Gardens, Florida 33420. Any exhibits furnished are subject to a reasonable photocopying charge. The Securities and Exchange Commission has not approved or disapproved of this Form 10-QSB and Annual Report to Shareholders nor has it passed upon its accuracy or adequacy. 36