-----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, WzVlUVY3GkG2gm1WaA4d10gHveEg+saz1yoZUc5BZUjMNts+w3/tjyPfjWZ+FxCF 4MyiVuYdQsBwr5yQ5PXEQQ== 0001077548-03-000005.txt : 20030423 0001077548-03-000005.hdr.sgml : 20030423 20030423170112 ACCESSION NUMBER: 0001077548-03-000005 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20030228 FILED AS OF DATE: 20030423 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: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-23617 FILM NUMBER: 03660552 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 10QSB 1 feb10q03.txt 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 28, 2003 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.) 2700 PGA Boulevard, Suite 103 Palm Beach Gardens, Florida 33410 - ----------------------------------------------------------------------------- (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 28, 2003 the issuer had 34,907,112 shares of common stock, $.0001 Par Value, outstanding. Transitional Small Business Disclosure format: Yes [ ] No [ X ] eCom eCom.com, Inc. Form 10-QSB February 28, 2003 INDEX PAGE NO. PART I FINANCIAL INFORMATION ITEM 1 FINANCIAL STATEMENTS Independent Accountant's Report 3 Consolidated Balance Sheets: February 28, 2003 and May 31, 2002 (Unaudited) 4 Consolidated Statements of Operations: Nine Months Ended February 28, 2003 and 2002 (Unaudited) 5 Consolidated Statements of Operations: Three Months Ended February 28, 2003 and 2002 (Unaudited) 6 Consolidated Statements of Shareholders' Deficit: Years Ended May 31, 2002 and 2001 and the Nine Months Ended February 28, 2003 (Unaudited) 7 Consolidated Statements of Cash Flows: Nine Months Ended February 28, 2003 and 2002 (Unaudited) 8 Notes to Consolidated Financial Statements 10 ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 23 PART II OTHER INFORMATION ITEMS 1-6 26 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 28, 2003 and May 31, 2002, and the related consolidated statements of operations, for the three-month periods and the nine-month periods ended February 28, 2003 and 2002, the consolidated statement of stockholders' deficit from May 31, 1999 through February 28, 2003, and the consolidated statement of cash flows for the nine-month periods ended February 28, 2003 and 2002. 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 $685,889 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 17, 2003 3 eCOM eCOM.COM, INC CONSOLIDATED BALANCE SHEETS (Unaudited) February 28, 2003 May 31, 2002 ASSETS ----------------- -------------- Current Assets Cash and cash equivalents $ 1,169 $ 12,803 Accounts receivable, net of allowance for doubtful accounts of $0 and $0 305 - Accounts receivable other 1,495 1,473 Inventories 158,119 173,533 Prepaid expenses 3,822 154,408 Other current assets - 187,000 Note receivable - 15,000 ------------ ------------ Total Current Assets 164,910 544,217 ------------ ------------ Property and Equipment, net 58,555 92,345 ------------ ------------ Other Assets Intangible assets, net 80,043 4,010 Other assets 9,383 110,883 ------------ ------------ Total Other Assets 89,426 114,893 ------------ ------------ Total Assets $ 312,891 $ 751,455 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $ 263,439 $ 287,466 Accrued expenses 1,884 3,845 Unearned revenue - 100,000 Current portion of long-term debt 585,476 469,344 Interest accrued on current portion - 6,274 ------------ ------------ Total Current Liabilities 850,799 866,929 ------------ ------------ Total Liabilities 850,799 866,929 ------------ ------------ Stockholders' Equity Common stock, $.0001 par value, 50 million shares authorized, 34,907,112 and 26,739,512 shares issued and outstanding 3,490 2,674 Paid-in capital 6,032,435 5,755,767 Accumulated deficit (6,573,833) (5,873,915) Treasury stock - - ------------ ------------ Total Stockholders' Deficit (537,908) (115,474) ------------ ------------ Total Liabilities and Stockholders' Equity $ 312,891 $ 751,455 ============ ============ 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 28, 2003 February 28, 2002 _________________ ________________ Revenues Net Sales $ 113,329 $ 159,658 Cost of Sales (90,465) (152,765) _________________ ________________ Gross Profit 22,864 6,893 _________________ ________________ Other Operating Expenses General and administrative 405,455 1,319,028 Sales and marketing 23,148 75,045 Product development 14,900 33,124 Amortization 15,192 1,590 _________________ ________________ Total Operating Expenses 458,695 1,428,787 Loss from Operations (435,831) (1,421,894) Other Income (Expense) Interest income - 2,510 Interest expense (9,604) (9,701) Loss on disposal of assets (254,480) (1,084) _________________ ________________ Net Other Expenses (264,084) (8,275) _________________ ________________ Net Loss $ (699,915) $ (1,430,169) ================= ================ Net Loss Per Common Share $ (.023) $ (0.065) Weighted Average Shares Outstanding 30,706,907 21,903,674 ================= ================ 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 28, 2003 February 28, 2002 _________________ __________________ Revenues Net Sales $ 29,506 42,089 Cost of Sales (24,048) (30,414) ______________ _____________ Gross Profit 5,458 11,675 ______________ _____________ Operating Expenses General and administrative 93,313 285,953 Sales and marketing 1,384 4,262 Product development 232 7,578 Amortization 5,065 560 ______________ _____________ Total Operating Expenses 99,994 298,353 ______________ _____________ Loss from Operations (94,536) (286,678) Other Income (Expense) Interest income - 2 Interest expense (4,668) (1,865) Loss on disposal of asset (277,071) - ______________ _____________ Net Other Expenses (281,739) (1,863) ______________ _____________ Net Loss $ (376,275) (288,541) ============== ============= Net Loss Per Common Share $ (.011) (.012) ============== ============= Weighted Average Shares Outstanding 33,609,445 25,031,937 ============== ============= 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, 2002 AND 2001 AND THE NINE MONTHS ENDED FEBRUARY 28, 2003 (Unaudited) Number At Add'l Total of Par Paid In Accum'd Treasury Stockholder Shares Value Capital Deficit Stock Deficit ---------- ------ ---------- ----------- -------- ----------- 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 7,728,686 773 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 8,167,600 816 276,668 - - 277,484 Net Loss - - - (699,918) - (699,918) ---------- ------ ---------- ----------- -------- ----------- Balance, Feb 28, 2003 34,907,112 $3,490 $6,032,435 $(6,573,833)$ - $ (537,908) ========== ====== ========== =========== ======== =========== 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 28, 2003 AND 2002 (Unaudited) February 28, 2003 February 28, 2002 _______________ _______________ Cash Flows From Operating Activities Cash received from customers $ 113,329 $ 177,614 Interest income - 2,510 Cash paid to suppliers and employees (269,499) (911,090) Interest paid (9,187) (88) _______________ _______________ Net Cash Flows Used in Operating Activities (165,357) (731,054) _______________ _______________ Cash Flows From Investing Activities Cash received from sale of 1-800-Paintball 300,000 Deposits made (1,010) Deposit 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 - 189,040 _______________ _______________ Cash Flows From Financing Activities Proceeds from note receivable 37,590 - Proceeds from sale of stock 114,469 Proceeds of loans from stockholders 182,653 331,158 Repayment of loans to stockholders (66,520) (109,400) _______________ _______________ Net Cash Flows Provided By Financing Activities 153,723 336,227 _______________ _______________ Net Decrease in Cash (11,634) (205,787) Cash and Cash Equivalents at Beginning of Period 12,803 206,271 _______________ _______________ Cash and Cash Equivalents at End of Period $ 1,169 $ 484 =============== =============== 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 28, 2003 AND 2002 (Unaudited) Reconciliation of Net Loss to Net Cash Flows Used in Operating Activities: February 28, 2003 February 28, 2002 _______________ _______________ Net Loss $ (699,917) $ (1,430,169) Add items not requiring outlay of cash: Depreciation and amortization 48,978 37,628 Expenses paid by issuing stock 165,173 846,184 Gain on sale of assets - (688) Loss on sale of assets - 1,772 Cash was increased by: Decrease in accounts receivable - 17,956 Decrease in inventory 15,413 78,670 Decrease in prepaid expenses 150,586 1,927 Decrease in other current assets 187,000 - Cash was decreased by: Increase in accounts receivable (327) Decrease in accounts payable (24,028) (281,971) Decrease in accrued expenses (1,961) (2,363) Decrease in accrued interest payable (6,274) - _______________ _______________ Net Cash Flows Used In Operating Activities (165,357) $ (731,054) =============== =============== Supplemental Disclosures - ------------------------ Non-Cash transactions Stock issued for purchase of fixed assets $ 1,950 Stock issued for purchase of intangibles 90,000 - Supplemental Schedule of Non-Cash Financing Activities - ------------------------------------------------------ Non-Cash transactions Stock issued for payment of services 235,985 $ 818,985 Stock issued for payment of debt 24,510 104,903 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 28, 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 has changed its direction and is now focused on the development and marketing of unique and secure software applications, for both stand alone products and integration into existing programs. A new division, MyZipSoft Inc., was established on March 3, 2003 to develop and market these new products. The first product is a high-compression software called MyPhotoZip (TM). The company considers this product "the ultimate image compression tool", that enables compression up to 1500 to 1 without loss of quality. Several other products are being developed one of which, MyNetZip, features a subscription based service that delivers faster DSL-like speeds over standard dial-up lines. This product will also enhance the speed of existing broadband connections. It will reduce broadband costs, provide portable broadband capabilities from anywhere, ultra-secure firewall and, ad and site blocking. This means that the company will be offering high-speed access where broadband is not currently available. Many other cutting edge applications will be introduced later this year. Previously, the Company developed an e-commerce infrastructure. eCom eCom provided an affordable, user-friendly technological platform and professional resources to facilitate web business development. We also have operated our own on-line business as a test model, using our e-commerce concepts to sell paintball products. However, we recently revised our business model in order to focus on the design and marketing of our first product MyPhotoZip(tm) software applications that will compress, store, protect and transmit large video data files. Our intention is to eventually divest other e-commerce product lines to concentrate on the development of the marketing of unique software. Our mission is to make our software products secure, 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 to eCom eCom.com, Inc. in January 1999. eCom is the parent of US Amateur Sports Company, which changed its name on 3/24/2003 to USA Sportnet Company. USA Sportsnet Company is the sole owner of USA Performance Products Inc. USA Performance Products manufactures and distributes paintball guns and accessories. It has served as a test model for our e-commerce business concepts and has generated the majority of our revenues to date. See accompanying independent accountants' review report. 10 ECOM ECOM.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED FEBRUARY 28, 2003 AND 2002 NOTE A - NATURE OF OPERATIONS (CONTINUED) 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. Consistent with the intent to divest all businesses and product lines unrelated to software development, the sale of one business and one product line were consummated during 2001. 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. 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. 11 ECOM ECOM.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED FEBRUARY 28, 2003 AND 2002 NOTE A - NATURE OF OPERATIONS (CONTINUED) 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. Baseball Hall of Fame candidate Jeff Reardon has been retained to assist with our marketing efforts. His photograph will be placed on MyPhotoZip(TM) and will be used for other advertising purposes. 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 and is scheduled to be released in 2003. 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. 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. See accompanying independent accountants' review report. 12 ECOM ECOM.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED FEBRUARY 28, 2003 AND 2002 NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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. Cash Cash consists of deposits in banks and other financial institutions having original maturities of less than ninety days. The company maintained cash balances in one bank in amounts in excess of federal insurance limits as of May 31, 2001. The balance in this account fell below $100,000 during August 2001. 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. See accompanying independent accountants' review report. 13 ECOM ECOM.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED FEBRUARY 28, 2003 AND 2002 NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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 28, 2003, inventory consisted of the following: Finished goods $ 7,501 Work in process 150,618 Raw materials 0 ---------- Total inventory $ 158,119 ========== NOTE D - PREPAID EXPENSES Prepaid expenses consist principally of amounts paid for rent, subscriptions and domain name registrations. NOTE E - 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 collateral- ization. The payment was received in a timely manner. NOTE F - PROPERTY AND EQUIPMENT The following is a summary of property and equipment recorded in the financial statements at cost less depreciation as of February 28, 2003 and May 31, 2002: February 28, 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 ---------------- ------------ See accompanying independent accountants' review report. 14 ECOM ECOM.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED FEBRUARY 28, 2003 AND 2002 NOTE F - PROPERTY AND EQUIPMENT (continued) Total Cost 311,580 311,580 Accumulated Depreciation 253,025 219,235 ------------ ------------ Total Net Property and Equipment $ 58,555 $ 92,345 ============ ============ Depreciation expense included in the cost of sales for the periods ended are: $ 33,790 $ 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 NOTE G - 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 $8,870 and $7,190 as of February 28, 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 $8,438 as of February 28, 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 $5,063 as of February 28, 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 H - OTHER ASSETS Other assets consist primarily of security deposits on the lease of office facilities, an employee advance and utility deposits. See accompanying independent accountants' review report. 15 ECOM ECOM.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED FEBRUARY 28, 2003 AND 2002 NOTE I - LONG-TERM DEBT Long-term debt at February 28, 2003 and May 31, 2002 consisted of: February 28, May 31, 2003 2002 -------- -------- A non-interest bearing, non-collateralized loan from an offshore corporation that is due on demand. 184,220 184,220 Three non-interest bearing, non-collateralized loans from stockholders. The loans are due on demand. 401,256 285,123 ---------- ---------- Total Long-Term Debt 585,476 469,344 Less Current Portion 585,476 469,344 ---------- ---------- Net Long-term Debt $ 0 $ 0 ========== ========== The long-term loans payable mature as follows: May 31, 2003 585,476 469,344 ---------- ---------- $ 585,476 $ 469,344 ========== ========== NOTE J - 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 against the loss on disposition of asset account on November 19, 2002. NOTE K - COST OF SALES Included in the cost of sales are the following: February 28, 2003 May 31, 2002 ------------ ------------ Shipping and handling costs $ 8 $ 28 Packaging costs 452 1,103 ------------ ------------ Total $ 460 $ 1,131 ============ ============ Shipping income $ 7,458 $ 9,706 ============ ============ See accompanying independent accountants' review report. 16 ECOM ECOM.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED FEBRUARY 28, 2003 AND 2002 NOTE L - COMMITMENTS AND CONTINGENCIES The Company leases office facilities under an operating lease one which expires on March 31, 2004 and one that expires June 30, 2003. The Company leases its manufacturing facility under an operating lease which expired June 30, 2002. Future minimum lease payments including sales tax as of February 28, 2003 are: Fiscal Years ending: May 31, 2003 $ 8,546 May 31, 2004 28,700 May 31, 2005 0 ------- Total Minimum Lease Payments $ 37,246 Rent expense for the nine month period ending February 28, 2003 and 2002 are $57,612 and $40,924 respectively. We are no longer party to any lawsuits, having settled all prior legal actions. Our dispute with Impact Imaging Inc. was settled in Baltimore, Maryland on November 19, 2002. On March 12, 2002 Impact Imaging, Inc. (III) filed suit in the United States District Court for the District of Maryland to establish a temporary restraining order preventing eCom eCom.com from selling myPicZip(TM) and DryIce(TM) so long as these products use III software and technology. The suit demanded that eCom eCom.com pay $250,000 plus interest, costs and attorneys' fees for the February 4, 2002 delivery of myPicZip(TM). 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 28, 2003 is 59,475.83. 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 See accompanying independent accountants' review report. 17 ECOM ECOM.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED FEBRUARY 28, 2003 AND 2002 NOTE L - COMMITMENTS AND CONTINGENCIES (continued) 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 will be voluntarily dismissed. NOTE M - 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 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 in return for cancellation of $437,362 ($.34 per share) of the debt owed to him. The balance owed to Mr. Panaia at February 28, 2003 was $262,052. 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 28, 2003 is $25,000. NOTE N - BUSINESS SEGMENTS The Company's reportable segments are strategic business units that offer different products and services. The Company has 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 will now focus on classifieds, auctions and its paintball gun company. The software segment will now focus on the design and resale of secure software applications for compression and transmission of large data files. See accompanying independent accountants' review report. 18 ECOM ECOM.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED FEBRUARY 28, 2003 AND 2002 NOTE N - BUSINESS SEGMENTS (CONTINUED) 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 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 Nine Months Ended: February 28, 2002 - ------------------ Revenues $ 158,846 $ 812 $ 159,658 Interest revenue - 2,510 2,510 Interest expense 698 9,003 9,701 Depreciation 19,965 16,168 36,133 Amortization - 1,590 1,590 Segment loss (107,511) (1,322,658) (1,430,169) Segment assets 256,697 163,094 419,791 NOTE O - 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 $685,889 at February 28, 2003 and that the Company has incurred net operating losses since inception. In April of 1999, the Company entered into a financing agreement with a third party whereby the Company may sell to the third party and that third party must buy, a number of the Company's shares of common stock, subject to restrictions (the "Put Option"). The more salient of the restrictions under the Put Option includes that the Company must first register the shares which See accompanying independent accountants' review report. 19 ECOM ECOM.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED FEBRUARY 28, 2003 AND 2002 NOTE O - RECOVERABILITY OF ASSETS AND GOING CONCERN (CONTINUED) may be subject to the put, and the price and number of shares which may be put to the third party in any 30-day period is dependent upon the Company's share price as determined on the OTC Bulletin Board and volume of trading activity. On April 10, 2000 the Company filed a registration statement on Form S-1 with the Securities and Exchange Commission. The registration statement was declared effective by the Commission on April 28, 2000, which allows the Company to exercise its rights under the agreement. The financing agreement was terminated in April 2002. Without the private placement from Swartz Private Equity, LLC, eCom will have to fund future software development and operations 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. eCom is continuing to look for buyers for the USA Performance Products division. NOTE P - INCOME TAXES 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 February 28, 2003 was approximately $6,565,000. These carry-forwards, which will be available to offset future taxable income, expire beginning in 2010. 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. NOTE Q - EFFECTS OF INFLATION To date, inflation has not had a material impact on the Company's consolidated financial results. NOTE R - 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. We adopted SAB 101 in our fiscal quarter beginning June 1, 2000. The adoption of SAB 101 had no impact to our operating results and financial position. See accompanying independent accountants' review report. 20 ECOM ECOM.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED FEBRUARY 28, 2003 AND 2002 THREE MONTHS ENDED AUGUST 31, 2002 AND 2001 NOTE R - RECENT ACCOUNTING PRONOUNCEMENTS (continued) 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. We adopted SFAS No. 133 in our fiscal quarter beginning June 1, 2000. The adoption of SFAS No. 133 had no impact to our operating results and financial position, since we currently do 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 estimateble 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 $20,257. 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. NOTE S - 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. See accompanying independent accountants' review report. 21 ECOM ECOM.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED FEBRUARY 28, 2003 AND 2002 THREE MONTHS ENDED AUGUST 31, 2002 AND 2001 NOTE S - PRIVATE EQUITY LINE (CONTINUED) As compensation to enter in to the Equity Line Commitment, Swartz received a warrant convertible into 490,000 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 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. See accompanying independent accountants' review report. 22 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 three-month periods ended August 31, 2002 and 2001 and the Form 10-KSB for the fiscal year ended May 31, 2002. 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 Two realities have been made clear: 1) investor appetite for technology stocks diminished dramatically; and 2) e-commerce spending declined. By early fiscal 2002, eCom had begun to radically restructure 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 transitional architecture consists of creating two business segments, e-commerce and e-software. The Company cancelled almost all of its existing partnerships and teaming agreements. It has settled all legal actions including reaching a fair and amicable resolution of a business dispute with Impact Imaging Inc. During the past few years eCom sold its sports marketing division, scaled back its manufacturing operations, downsized its full-time employees and consultants, dramatically cut its operations and overhead, and focused on its new core business software development and marketing. The first new software development venture focused on image compression. Through an agreement with MT Wice eCom, developed MyPhotoZip (tm). MyPhotoZip(tm) software revolutionizes the compression, storage, protection, transmission and use of large digital image files. MyPhotoZip(tm) is capable of compressing electronic images to ratios previously thought to be 23 ECOM ECOM.COM, INC. impossible. During the prior fiscal year, we recognized that the market potential of this software and its applications far exceeded any other opportunity available to us. We retooled our company's mission, the related business model and our corporate structure to focus on the development of applications and markets for MyPhotoZip(tm) software. We have made significant progress during the prior two quarters in the transition to implement the new business model. In July 2002 we announced that Peter Tamayo, Jr. Ph.D. was appointed President and Chief Technology Officer. On July 31, 2002 the company announced the initial launch of its affiliate marketing program to sell MyPhotoZip. Our company's reengineering dictated the need to sell or spin off all of our non-software product lines. With the sale last year of our 1-800-PAINTBALL business and the Star Dot Marketing subsidiary, the only significant revenue- generating product line left from our previous business model was the Viper M1 paintball marker. As discussed below, our 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 MyPhotoZip(tm) and other software products will confirm that the current lull in revenue generation is a minor inconvenience. Results of Operations Comparison of the nine month ended February 28, 2003 with the nine months ended February 28, 2002 Revenue for the nine-month period ended February 28, 2003 was $113,329 compared to $159,658 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). Our 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 for shipment during April 2001. The sale subsequently was canceled. We intend to rebuild Viper sales volume in anticipation of the eventual sale of this product line. Gross profit improved from $6,893 in the prior year period to $22,864 in the current nine-month period. Amounts charged to cost of sales in the prior year included costs associated with rebuilding our Viper M1 production line. 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 $75,045 in the nine months ended February 28, 2002 to $23,148 in the current nine-month period. Product development expenses were cut from $33,124 in the prior year period to $14,900 in the current nine-month period. General and administrative costs dropped from $1,319,028 in prior year to $405,455 in the current nine-month period. Most of this cost savings was generated from a reduction in personnel and overhead. 24 ECOM ECOM.COM, INC. Amortization expense increased from $1,590 to $15,192 as a result of increases in intangible assets. During the current nine-month period, the company acquired the rights to license Virtual Protect and Pandora from Internet Security Solutions, Inc. The company also acquired the rights to the www.fotocrazy.com internet domain name. The fotocrazy.com web site will be an online digital photo album site were customers will be able to store and share their pictures. The company incurred net interest expense of $9,604 in the current nine month period compared to a net interest expense of $7,191 in the prior year nine month period. This was primarily due to being able to invest the proceeds from the May, 31 2001 sale of the 1-800-PAINTBALL name for $900,000 during the nine months ending February 28, 2002. Our operations for the nine months ended February 28, 2003 resulted in a net loss of $699,915, a $730,254 improvement over the net loss of $1,430,169 recorded during the nine months ended February 28, 2002. Comparison of the three months ended February 28, 2003 with the three months ended February 28, 2002. Revenue for the three-month period ended February 28, 2003 was $29,506 compared to $42,089 of revenue recorded during the same period of the prior year. Gross profit declined from $11,675 in the prior year to $5,458 in the current quarter. Reductions were recorded in all operating expense categories except for sales and marketing. Sales and marketing expenses decreased from $4,262 in last years third quarter to $1,384 in the quarter ending February 28, 2003. The downsizing of personnel noted in the nine-month analysis above accounted for most of the savings to General and administrative expenses. G&A expenses of $93,313 posted in the current quarter reflected a cut of $192,640 from the $285,953 in G&A costs recorded during the same period of the prior year. Product development expenses declined from $7,578 in the prior year quarter to $232 in the current three-month period. Amortization expense increased from $560 to $5,065 as a result of increases in intangible assets as noted in the nine-month analysis. Our operations for the three months ended February 28, 2003 resulted in a net loss of $94,536, a $192,142 improvement compared to the net loss of $286,678 recorded for the three months ended February 28, 2002. Liquidity and Capital Resources At February 28, 2003, current assets totaled $164,910 compared to $544,217 at the end of the prior fiscal year. Of the $379,307 decrease in total current assets, prepaid assets accounted for $150,586 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 current period resulting in a loss of $116,418. 25 ECOM ECOM.COM, INC. 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 current quarter 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 $11,634 and in inventories of $15,514 helped to reduce accounts payable still remaining from our discontinued lines of business. Accounts payable decreased $24,028 from May 31, 2002 to February 28, 2003. Current liabilities decreased from $866,929 at the end of the prior fiscal year to $850,799 at the end of the current quarter, a decrease of $16,130. Net cash used in operating activities was $165,357 during the current nine- month period compared to $731,054 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 $165,173 towards our operating deficit during the current nine-month period. Investing activities provided $189,040 in cash during the prior years six- month period compared to no cash used in investing activities for the current nine-month period. 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 $153,723 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. PART II. OTHER INFORMATION ITEM 1. Legal Proceedings. We are no longer party to any lawsuits, having settled all prior legal actions. Our dispute with Impact Imaging Inc. was settled in Baltimore, Maryland on November 19, 2002. 26 ECOM ECOM.COM, INC. On March 12, 2002 Impact Imaging, Inc. (III) filed suit in the United States District Court for the District of Maryland to establish a temporary restraining order preventing eCom eCom.com from selling myPicZip(TM) and DryIce(TM) so long as these products use III software and technology. The suit demanded that eCom pay $250,000 plus interest, costs and attorneys' fees for the February 4, 2002 delivery of myPicZip(TM). On May 20, 2002 ECOM filed a counterclaim against III, alleging breach of contract, breach of warranty, breach of implied covenant of good faith and fair dealing, fraud, and negligent misrepresentation. On November 19, 2002 an equitable settlement was reached between eCom and III. As part of the settlement eCom agreed not to sell or distribute any software developed by Impact Imaging Inc. 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 have recently come to light. The first matter concerning National Paintball which has 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 lead to the shortfall. The second matter is the attorney for Renick Enterprises Inc. has notified us of his contention that the company failed to complete its agreement by the appropriate date. Management feels that the claim is unfounded and that the company met its obligation timely. Attorney Plowman will continue to resolve this matter. 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. 27 ECOM ECOM.COM, 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 it's Viper-M1. 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 28, 2003 is 59,475.83. 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 will be voluntarily dismissed. 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. The company is in the process of replacing its attorney, Carol Ann Plowman who has notified the company that she will no longer be practicing in the securities field. Just prior to this filing the following events occurred: 28 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 40 companies making markets in our stock. The company has delivered a specialized version of MyPhotoZip and a custom MPZ viewer to the U.S. Air force Space Command. This edition will be utilized in approximately 124 U.S. Air force base installations worldwide; the special build of the viewer is available under open licensing to all U.S. military and associated civilian personnel. The company is currently conducting research and development for the Department of Defense and subcontractors for imaging and storage solutions for military applications with the underlying MyPhotoZip software development kit. As part of the companies new marketing strategy which it has embarked upon. On April 1, 2003 eCom entered into a Sales Representative Agreement with Quadrix LLC of Orange CA. Quadrix will distribute all MyZipSoft products. Marketing strategy is being developed at this time. The company signed an agreement with Digital River to provide e-marketing services for on-line sales of all of its software products. The company is presently negotiating a joint venture agreement with Filtered Internet Solutions (FIS) of Rochester NY to market our MyZipSoft products. FIS markets certain internet filtering and security products under their Marvel Entertainment, Inc. Spider-Man licensing agreement. ITEM 6. Exhibits and Reports on Form 8-K. (a) Exhibits: EXHIBIT NUMBER DESCRIPTION LOCATION ------- ----------------------- ------------------------------ 27 Financial Data Schedule Filed herewith electronically (b) Reports on Form 8-K: None This schedule contains summary financial information extracted from the balance sheets and statements of operations found on pages 4 and 5 of the Company's Form 10-QSB for the quarter ended February 28, 2003, and is qualified in its entirety by reference to such financial statements. 29 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 15, 2003 By: /s/ David J. Panaia David J. Panaia, Chief Executive Officer April 15, 2003 By: /s/ Richard C. Turner Richard C. Turner, Chief Financial Officer 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 officers 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 being 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 the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 30 ECOM ECOM.COM, INC. 5. The registrant's other certifying officers 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; and 6. The registrant's other certifying officers 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 18, 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 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 officers 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 being prepared; 33 ECOM ECOM.COM, INC. 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 the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers 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; and 6. The registrant's other certifying officers 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 18, 2003 /s/ Richard C. Turner - --------------------------- Richard C. Turner Chief Financial Officer 34 -----END PRIVACY-ENHANCED MESSAGE-----